A trio of producers has asked FERC to delay Rockies Express Pipeline’s (REX) hydrostatic testing of its line in September for one simple reason — monetary gain, REX charges.
REX shippers ConocoPhillips, Shell North America LP and Yates Petroleum Corp. “are only interested in delaying the test and the outage until the demand for gas is stronger due to the winter season, thus yielding them higher prices in the marketplace,” REX said in response to the producers’ request for an immediate injunction to block the testing. In addition to being a shipper, ConocoPhillips is part owner of REX. The other two owners are Kinder Morgan Energy Partners LP and Sempra Pipelines & Storage.
If the Federal Energy Regulatory Commission (FERC) delays hydrostatic testing for 60 to 90 days, as requested by the producers, “markets in the Midwest and Chicago will be deprived of gas during the winter heating season,” resulting in higher costs to consumers there, the pipeline told the agency [CP08-460].
REX called on FERC to deny the producers’ plea, saying it was “legally and factually baseless.” The producers constitute three of 12 shippers with firm capacity on Rockies Express, the pipeline said.
“Rockies Express selected September to conduct the hydrostatic test in order to minimize the outage’s impact on shippers and consumers. September is a shoulder month, when national demand for natural gas is at a relatively low level. Conducting the test during a shoulder month will best serve the public interest by minimizing the overall impact that the outage will have on market prices and reliability.”
However the three producers, which are known as Indicated Shippers, contend that the U.S. natural gas market could be deprived of up to 18 Bcf during the peak of the hurricane season” and storage injection season if the REX test occurs as planned between Sept. 3 and Sept. 26. The producers urged FERC to respond to their request for an injunction by Sept. 3 (see Daily GPI, Aug. 19).
REX countered that hurricane activity in the Gulf of Mexico was relatively subdued in 2007 and has followed a similar pattern so far this year.
The REX pipeline further said Rockies producers will not be forced to shut in their gas as a result of the testing. “There is more than adequate capacity to move production to trading hubs in the Rockies and out of the Rockies during September and October; the issue for Indicated Shippers is merely low demand, which affects price, not the ability to keep wells flowing.”
But another Rockies producer believes differently. “With the way production has been growing out here — up about 1 Bcf/d so far this year — pipelines will be maxed out with the loss of so much REX capacity. It’s coming at a time of very low regional gas demand,” he told NGI. He said he expected several independent producers to shut in their gas during September.
REX plans to conduct the hydrostatic testing on a segment of its mainline between Steele City Compressor Station in Gage County, NE, and Turney Compressor Station in Clinton County, MO. REX said the 26.6-mile leg of the pipeline did not get tested at a high enough pressure to allow for the maximum allowable operating pressure of 1,480 psig. It added that this will be necessary when the REX-East segment of the line is placed in service to Lebanon, OH, in January 2009.
Hydrostatic testing will require all of the natural gas to be removed from the pipeline, after which the pipe is filled with water, at a designated pressure, for additional testing.
A decision by FERC to enjoin the testing would play havoc with the market, REX said. “Shippers have made alternative plans in reliance on the announcement of the September [testing] date. Indeed, another interstate pipeline company announced plans to [delay its] maintenance [until] after the conclusion of the hydrostatic test in order to provide shippers with an alternative route.”
Moreover, REX argued that hydrostatic testing of its pipeline in winter would not be practical. “All other Kinder Morgan pipelines as well as other pipelines in the industry, when possible, schedule their hydrostatic tests during months when freezing is not an issue…[And] to utilize the time of the outage to the greatest extent possible, Rockies Express has rescheduled other maintenance projects on downstream portions of the line so that they can be conducted during the time of the hydrostatic test. The timely completion of this maintenance would also be at a much greater risk under winter conditions.”
From a legal standpoint, “there is no provision in the Commission’s regulations for seeking an injunction in the absence of a Section 5 complaint, nor has Indicated Shippers cited any precedent for such extraordinary relief,” REX said. In addition, “Indicated Shippers failed to show that it will suffer any actual harm as required by the standard [for a stay]. On the contrary, Indicated Shippers merely speculates that much of the gas will be shut in, and that shutting in natural gas might cause reservoir damage.”
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