Pipeline Planning Goes on despite Low Natural Gas Prices

Article excerpt

Natural gas is in the limelight today, but for reasons not so pleasant.

Prices are depressed to a point not seen in decades.

Overproduction is blamed in part for the price collapse, which went as low as 95 cents per thousand cubic feet for July.

In the discussion about improving natural gas prices arises the argument for increasing demand. Then comes discus- sion of pipeline capacity, which has been argued to be restrained in Oklahoma for some time.

Some producers assert, however, that while demand is low there should be limited consideration of new pipelines.

Currently, there are $3 billion worth of new pipeline construction planned or under way in Oklahoma.

And, while the economic cycle of the gas industry hits the downside curve, evolution of the regulated workings of the industry continues. The Federal Energy Regulatory Commission is presently undertaking a rule making action aimed at further pipeline reform. Whether this will prove to be a positive step or not is yet to be seen.

Certainly, pipeline policy affects the business of producers. But, producers have not always felt that federal regulators lend an ear to their specific concerns in the industry.

In the FERC's proposed rule making on interstate pipeline comparability of service, there would be revisions to regulations governing self-implementing transportation and the purchased gas adjustment regulations. It is a continuation of the transformation of pipelines from gas merchants to nondiscriminative carriers.

"The IPAA (Independent Petroleum Association of America) is especially

interested in the FERC's proposed rule making. . .which raises most of the fundamental policy questions currently before the natural gas industry," said Eugene L. Ames Jr., president of Venus Oil Co. of San Antonio, Texas, before the U.S. House Republican Research Committee Energy Task Force.

Ames is chairman-elect of the national organization of independent producers.

He noted that natural gas represents more than 70 percent of production by independents and 75 percent of their reserve base, according to a recent survey by Arthur Andersen & Co. Furthermore, independents account for about 60 percent of domestic gas production, he said.

"One of IPAA's top natural gas policy objectives," Ames said, "is to ensure a level playing field between domestic and foreign natural gas producers through consistent attention to the impact of pipeline rate design on pipeline construction and gas purchasing decisions." Those issues seemed to come to a head last year during hearings at FERC on the proposed Iroquois pipeline from Canada to New York.

Essentially, federal regulators are contemplating abandoning its previous policy of applying a modified fixed variable rate design, which shifts fixed costs to the commodity charge and thus increases the marginal cost of domestic gas to a pure fixed variable rate design that does not recover fixed costs in commodity rates. …