Gas pipelines and producers are at odds over how far the Federal Energy Regulatory Commission should regulate the gathering systems that pipelines and their affiliates own.
Interested parties filed comments with FERC recently. FERC is investigating gathering system issues left unresolved when Order 636 unbundled gathering systems from interstate transportation and required pipelines to offer separate rates for each.
Gathering systems transfer gas from the wellhead to an intrastate or interstate pipeline or to a processing plant. Interstate pipelines' gathering systems are subject to FERC jurisdiction but not those owned by producers or independent parties.
PIPELINES' VIEW
The Interstate Natural Gas Association of America, which represents pipelines, told FERC current regulations do not allow pipelines' gathering facilities a fair chance to compete with other firms.
Ingaa said, "All gatherers must be able to compete under the same rules regardless of their independence or affiliation. This is consistent with protecting the ultimate consumer by making the benefits of competition available. Currently only pipelines and their gathering affiliates must conduct business under FERC's rules."
It said the gathering industry is highly competitive for production, citing a Foster Associates Inc. survey of gathering in five major producing states.
The study found that in Colorado, Kansas, New Mexico, Oklahoma, and Texas more than 2,000 firms gather 27.5 bcfd of gas from 300,000 producing wells, representing 56% of Lower 48 gas production.
The Foster report said no single kind of company dominates the gathering business. Major oil companies gather 24% of the volume, interstate pipelines 22%, independent oil companies 17.8%, intrastate pipelines 16.7%, gatherers/processors 12.8%, and interstate pipeline affiliates 6.7%.
It said gatherers compete on the basis of efficiency, reliability, and availability of transportation to market and their ability to obtain a favorable price for residue gas and extracted gas liquids. It said there are no major barriers to entry into the market.
Ingaa said the study found unregulated gatherers are optimistic about the future.
"Many of these companies report that their current success results from availability of open access transportation and the unbundling of services and rates by the interstate pipelines.
"Clearly, running profitable operations in a competitive environment is a challenge for any company. Ingaa does not believe, however, that the regulatory process should be used to allow companies not subject to FERC cost of service regulation a competitive advantage over FERC regulated companies."
PRODUCERS RESPOND
The Natural Gas Supply Association, which represents producers, said FERC should exercise its full statutory authority over pipelines' gathering systems.
NGSA agreed with Ingaa that some competition exists but contends that does not mean interstate pipelines don't have monopoly power in many areas.
It said gatherers are in the position to make onerous contractual demands on producers, requiring them to obtain written consent before connecting a well to a competing gathering system and pledge not to sell from a well unless the buyer agrees to allow the gatherer to continue service under the existing terms and conditions.
It said some gatherers demand the right of first refusal for all additional gas output the producer has within a geographic area and demand they receive all liquid hydrocarbons that condense in the gatherers' facilities.
NGSA reminded FERC that existing laws require it to maintain jurisdiction over gathering pipelines owned by interstate lines and their affiliates and that FERC should require them to file rates.
It said, "Competition is a factor in determining substitutes for cost based rates, but it does not remove FERC's responsibility to exercise statutory mandates. FERC should assess competition on an individual wellhead basis, not generically."
It said if FERC reduced or eliminated regulation of affiliate owned gathering, it would force producers and shippers to renegotiate contracts with little or no leverage.
And NGSA maintained pipelines currently have adequate tools to compete with independent or producer owned gathering systems.
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