Newspaper article THE JOURNAL RECORD

Negotiations Could Reduce Pipeline Companies' Costs

Newspaper article THE JOURNAL RECORD

Negotiations Could Reduce Pipeline Companies' Costs

Article excerpt

NEW YORK - Prices that pipeline companies have been forced to pay for natural gas could be significantly reduced as a result of negotiations under way between the Columbia Gas Transmission Corp. and its gas producers.

At issue is the take-or-pay system that obligates pipeline companies to honor long-term contracts that require them to pay what are now above-market prices for gas they cannot sell because of declining demand.

Columbia Gas System Inc., the parent company, said that Columbia Gas Transmission had offered to pay its gas producers up to $800 million in cash over a three-year period in exchange for amending the contracts.

Bruce Quayle, a company spokesman, said officials had been negotiating since mid-April with the 23 producers who have take-or-pay contracts.

Quayle declined to discuss specific details of the negotiations, but said they were ""moving along well'' and that an agreement was expected before the end of the year.

The negotiations represent one of the most forceful steps yet taken by a pipeline company to ease the severe financial strains the industry has faced in recent years as demand for natural gas has fallen sharply. A successful conclusion to the negotiations could also spur progress at ongoing talks between other pipeline companies and their producers.

Columbia Gas Transmission signed contracts during the natural gas shortages of the mid-1970s that call for it to buy set quantities of natural gas at rates of $5 to $9 for every 1,000 cubic feet. Wellhead prices for natural gas now range from $2.20 to $2.95, according to industry officials and pipeline analysts.

Columbia is seeking to have the contracts redrawn so that the prices would be periodically adjusted to conform to market prices of natural gas.

David N. Fleischer of Prudential-Bache Securities Inc. said a successful renegotiation ""will probably get Columbia back in the neighborhood of being competitive, which is a great improvement from where they've been. …

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