The abundance of gas coming out of the Marcellus Shale is contributing to a situation on Columbia Gas Transmission that is pinching the pipeline’s storage operations in northern Ohio and creating oversupply on the western portion of its system, according to a recent rate adjustment filing at FERC. However, a group of the pipeline’s customers claim that difficulties Columbia is having balancing gas on its system are its own fault.

On July 1 Columbia filed for a periodic transportation costs rate adjustment (TCRA) to recover costs of third-party capacity intended to relieve the undersupply situation in northern Ohio and relieve an oversupply situation at Leach, KY.

“In particular, increased supply into Columbia’s system from both Marcellus and other sources of production are displacing supply from ANR Pipeline Co. for Columbia’s northeastern markets,” the filing [RP11-2253] at the Federal Energy Regulatory Commission said. “The reduction in receipts is adversely impacting Columbia’s ability to fill its northern Ohio storage fields and serve northern Ohio markets.”

While the pipeline has asked shippers on multiple occasions to deliver more gas into northern Ohio, it has not seen significant changes in receipts, it said. Without “swift action,” the pipeline’s ability to meet firm storage withdrawal obligations could be impacted this winter, it said. “Additionally, if the reduction of receipts continues through the winter, then firm transportation markets would also be adversely impacted.”

However, it wasn’t the overload of Marcellus Shale gas but poor planning by Columbia that “may have created or contributed” to the storage constraints on its system in northern Ohio, Indicated Shippers said in a protest to the pipeline request for a tariff increase. Columbia should not be permitted to recover from its shippers the costs of the third-party capacity the pipeline has contracted to resolve the problem, a group composed mainly of producers said.

The Indicated Shippers group specifically has protested Columbia Gas Transmission’s request for an additional $4.18 million to cover the costs of contracts with three different pipelines to “move” supply from the southern part of its system into northern Ohio [RP11-2253]. This is about half of the total $10 million increase in the TCRA surcharge that Columbia Gas is seeking effective Aug. 1.

The group called on the Federal Energy Regulatory Commission to establish “appropriate fact-finding procedures” to determine whether Columbia’s proposed recovery of the costs is just and reasonable.

“Columbia’s contracting practices with regard to its own services may have created or contributed to this problem, calling into question whether Columbia’s expenditures on third-party transportation agreements are prudent,” said Indicated Shippers, which includes BP Energy Co., BP America Production, Chevron U.S.A. Inc., ConocoPhillips Co., Delta Energy LLC, ExxonMobil Gas & Power Marketing Co., Hess Corp. and Interstate Gas Supply Inc.

Because it expects the situation to be ongoing, Columbia said its option of imposing stringent operating conditions on shippers was not attractive as an operational flow order “could be in effect for the entire summer injection season.” Rather, it has opted to contract for third-party capacity on multiple pipelines to move gas south from Kentucky to Louisiana and then back north to Ohio.

“First, Columbia will deliver gas into Columbia Gulf Transmission Co. (Columbia Gulf) at Leach, KY. Columbia Gulf will transport that gas as a firm backhaul from Leach to its interconnection with Regency Intrastate Gas (Regency),” the filing said. “Regency will transport that gas on an interruptible basis to its interconnection with ANR. Finally, ANR will transport the gas on a firm basis to its interconnection with Columbia at Monclova, OH.”

The pipeline’s filing describes three alternatives that also were considered. These involved Texas Eastern Transmission, Tennessee Gas Pipeline and Rockies Express Pipeline.

“However, contracting for firm backhaul service on Columbia Gulf represented the best value out of the available options because it would be reliable and available throughout the summer,” the pipeline said. “In addition, during the summer season discounts on other pipelines are generally higher for shippers willing to contract for firm service.”

Additionally, Columbia said in its filing that third-party service will be necessary to alleviate the impacts of upcoming construction on its system (Line 1278 and Line P).

In its initial 2011 TCRA filing [RP11-1822] Columbia projected that it would incur costs for transmission and compression of gas by others (Account No. 858 costs) of about $37.87 million for the period April 1, 2011 through March 31, 2012. However, because of the over-/undersupply issue and planned construction, those costs are now projected to be more than $47.75 million. Because of this, “Columbia has determined that the currently effective TCRA rates should be revised, effective Aug. 1, 2011,” it said.

“If Columbia has created congestion on its own system through its contracting for transportation of Marcellus production, such that it purportedly needs to acquire off-system capacity as a ‘release valve’ to relieve the congestion and allow gas flows that previously occurred without hindrance, such conduct raises legitimate issues of prudence,” the customer group said.

A review of Columbia Gas Transmission’s Index of Purchasers indicates that over the past four years the pipeline has entered into approximately 23 firm contracts accounting for 463,483 Dth/d, all of which appear to list Columbia’s interconnection with its sister pipeline, Columbia Gulf Transmission, at Leach, KY, as a primary delivery point, Indicated Shippers said. However, they noted that the Leach interconnection with Columbia Gulf functions as a physical receipt point into Columbia Gas’ system, not a physical delivery point.

“Consequently, it appears that by making Leach the primary delivery point under these long-term contracts for a substantial quantity of gas, Columbia may have contracted to provide firm transportation service for these quantities without any apparent ability to deliver the gas from its system and designated the Leach point as a primary delivery point on an arbitrary basis solely for administrative purposes. If so, Columbia itself may have caused the congestion for which it now seeks to recover $4 million from its shippers,” the producer and marketer group said.

To address the storage problem in northern Ohio, Columbia has entered into contracts with three different pipelines, for which it seeks the $4 million surcharge hike, to move gas from the southern part of its system to northern Ohio. The contracts are with Columbia Gulf for 288,000 Dth/d of firm backhaul service from the interconnection at Leach to Columbia Gulf’s interconnection with Regency Intrastate Gas in Louisiana; Regency Intrastate for 17,928 MDth/d of interruptible service from Columbia Gulf to its interconnection with ANR; and ANR under three FTS-1 agreements for 288,000 Dth/d of firm transportation service back to Columbia’s system at a delivery point in northern Ohio.

“There appears to be a mismatch in quantities and service priorities between Columbia Gulf and ANR contracts, on one hand, and the Regency contract on the other…Columbia provides no explanation of this disparity in contract quantities. Nor does Columbia explain why it has purchased firm service on Columbia Gulf and ANR, the first and third legs of the workaround route it has devised, but has only interruptible on Regency, the second leg of the route,” Indicated Shippers said.

In a recent operational notice Columbia told shippers that it has tentatively planned a meeting in Washington, DC, for Aug. 30 to discuss “long-term solutions” for the issue of declining receipts in northern Ohio.

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.