Federal regulators cite a 77.6 percent decline in take-or-pay
exposure among natural gas pipelines in refusing numerous requests
to rehear the controversial open access transportation rule.
Producers especially are opposed to the Federal Energy
Regulatory Commission Order 500-H, which allows pipelines to recoup
some take-or-pay costs. The final order, which was approved in
mid-December, extended the timeframe for pipelines to recover costs
from the previous deadline of March 31, 1989, to Dec. 31.
While pipelines can recoup up to 50 percent of take-or-pay costs
to their customers, producers have no mechanism to recover their
Outstanding take-or-pay exposure to natural gas pipelines across
the nation have been lessened 77.6 percent from $10.7 billion in
1986 to $2.4 billion as of March 31, 1989, Federal Energy Regulatory
"These facts demonstrate that pipelines, producers and consumers
have been sharing in the burden of resolving the take-or-pay
problem," the commission asserts.
Producers, distributors and consumers disagree.
Associated Gas Distributors and the American Gas Association
disputed the proposed rule, leading to five years of litigation.
Appellate courts ordered the Federal Energy Regulatory
Commission to issue a final rule by Dec. 15 and explain why it had
not used authority granted by the Natural Gas Act to abrogate
contracts as a means to eliminate take-or-pay.
Federal Energy Regulatory Commission refused to invoke its
authority on contracts even in the final order, insisting that it
would be ineffective, inequitable and inconsistent with its attempt
to foster a competitive gas market.
"In any event . . . pipelines are resolving take-or-pay through
settlements," the commission said.
Producers argue they are getting the short end of the stick in
settlements, especially since so many small producers cannot afford
prolonged legal cases. Some say they are recovering pennies on the
dollar in take-or-pay settlements.
The only reconsideration Federal Energy Regulatory Commission
granted on Order 500-H was on the notice period before pipelines may
apply take-or-pay credits to must-take gas. The commission extended
the period from 30 days to 60 days.
The dispute is not likely over, though. Several indications
have been made that the final order will be challenged in the
courts. . .
- Energy analysts predict an overall 5 to 15 percent rise in
natural gas prices for 1990 and that domestic drilling will lean
toward natural gas.
There had been a marked inclination among the oil and gas
industry toward natural gas drilling in mid-1989, perpetuated by
talks of a new Clean Air Act, according to surveys by Petroleum
The industry, however, by yearend indicated that 1990 drilling
will continue to be weighted more heavily on oil. Producers say
there has been no real sign of rising natural gas prices outside of
the unusual cold blast in December, and many fear that natural gas
futures trading will be detrimental to prices.
Monthly natural gas spot prices remained fairly constant through
most of 1989, ranging from an estimated $1.48 to $1.78 per million
British thermal unit. The range excludes highs set in January and
Arnold E. Safer, president of the Energy Futures Group, predicts
the 9.6 percent rise in January gas prices will contribute to an
unprecedented surge in average first quarter prices. He forecasts a
significant decline in second quarter, but still not to 1989 levels
due to continued demand for storage.
Third and fourth quarter prices, Safer said, will rise 5 to 15
percent higher than last year's levels, "depending upon the
magnitude of summer electric generation requirements."
Natural gas futures are targeted to begin trading in April, but
Safer did not speculate what effect that will have on prices. …