A pipeline-commissioned study that says the producer share ofthe offshore pipeline industry is on the upswing and that increasedrate and tariff flexibility from FERC largely are responsible forthe phenomenon drew the wrath of producers last week.
The study, which was commissioned by the INGAA Foundation,found the producer-owned share of new pipeline construction hasmore than doubled in the Gulf of Mexico in the past eight years, to76% of the 4,000 new miles of pipe built since 1990 from a previousshare of 32%. At the same time, the interstate pipelines’ share ofplanned offshore capacity is expected to dwindle, it noted. INGAAPresident Jerald Halvorsen indicated that favorable regulation forproducers at FERC, rather than economics, were driving this trend,resulting in traditional pipelines getting a “shrinking piece ofthe capacity pie” in the Outer Continental Shelf (OCS).
Interstate pipelines and producers presently own about an equalshare of the existing 14,112-mile offshore pipeline network, 48%and 45% respectively. But the balance of ownership is expected toshift in favor of producers in the future, according to the study.Of the 1,512 miles of new offshore pipeline planned, major oil/gasproducers and independent producers will own 70% while traditionalinterstate pipelines will own only 22%, it noted.
“It’s true that the traditional certificated pipeline company islosing its piece of the [offshore] pie, but it’s not losing itbecause it isn’t able to apply for the same types of certificatesthat producers can apply for,” countered Nick Bush, president ofthe Natural Gas Supply Association (NGSA). The key reason is thatproducers “can build [these pipelines] more economically and runthem more efficiently” than the traditional pipelines, he contends.
Bush believes INGAA is using the study as an “advocacy piece” toconvince FERC to forego regulating the offshore under the NaturalGas Act (NGA) in favor of lighter handed oversight under the OuterContinental Shelf Lands Act (OCSLA), which the pipelines supportand producers oppose. “We think that the current regulatorystructure [the NGA] is more than adequate, and we think our actionsdemonstrate it,” Bush said.
The study indicated that traditional pipelines may be”handicapped” when competing against the newer producer-builtjurisdictional pipelines. “The contention somehow thatproducer-built pipelines have advantages unable to be obtained bytraditional certificated pipeline companies is simply wrong,” Bushcontends. Any new pipeline, regardless of who’s building it, “hasthe ability to get the same type of conditions that have beenissued recently to some producer pipelines,” he said.
In other aspects, the INGAA study found the gas industry willneed an additional $7 billion of pipeline construction over thenext 15 years to meet growing production in the Gulf of Mexico. Thefigure excludes projects that are newly built or are currentlypending at FERC.
Specifically, the study said proposals for 1,512 miles ($1.6billion) of offshore projects still are pending at FERC, 4,000miles ($3.5 billion) of new pipelines have been built since 1990,and another 7,400 miles ($7 billion) will be needed in the futureto meet production requirements in the Gulf.
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