State, North Slope producers comment on Denali request for open season

All three of the North Slope's major producers, plus the State of Alaska, have submitted comments to the Federal Energy Regulatory Commission on the request for an open season filed by Denali - The Alaska Gas Pipeline (a joint venture between ConocoPhillips and BP). None of the comments oppose the open season that would start July 6 for the North Slope natural gas pipeline, subject to FERC approval, though all ask questions and offer suggestions.

Those comments include:

The State of Alaska disagrees with Denali's proposed restrictions on access to open season documents in the reading rooms that will be maintained by Denali. The pipeline developer, in its open season plans submitted to FERC, included provisions to shield commercial and competitive information from State of Alaska offices and officials that have a statutory relationship with Denali's competitor, the Alaska Pipeline Project (a partnership joint effort of TransCanada Alaska and ExxonMobil).  The Alaska Pipeline Project is the pipeline developer selected under the Alaska Gasline Inducement Act for state financial and regulatory support.

The State of Alaska, in its April 30 motion with FERC, said Denali's proposed restrictions on access to documents is too broad and could hinder the legitimate interests of the state as a potential shipper on the gas line. The state asks FERC to lessen the restrictions and to accept the state's commitment that officials with access to Denali information will not share it with the Alaska Pipeline Project representatives.

ExxonMobil, in its April 30 motion with FERC, said it supports FERC approval of Denali's open season, with some clarifications. The federal commission has the authority to order changes in an applicant's open season proposal.

ExxonMobil is asking Denali to more clearly identify how it plans to segregate in-state and out-of-state pipeline costs in establishing its rates, specifically as it affects rates for in-state shipment of gas. The producer also wants Denali to further explain its proposal to allocate over-subscribed capacity to non-conforming bids outside the open season.  ExxonMobil claims Denali does not sufficiently explain how it would allocate such capacity to non-conforming bidders.

BP in its April 30 comments filed with FERC asks that Denali's open season bid sheet should more clearly define the services that are offered to ensure that all bidders are bidding on the same service arrangements, especially as they relate to seasonal variations in the maximum daily quantity. The producer also objects to Denali's precedent agreement provision requiring bidders to commit to resubmitting their bids in the event that FERC requires Denali to hold a revised open season.  BP is concerned that bidders should not be required to commit to resubmitting a bid under unknown terms if FERC orders a revised open season.

BP objects to several of Denali's requirements for a bidder to show upstream and downstream capacity, including contracts with third-party upstream and downstream service providers in advance of the in-service date for the gas line. The producer also objects to Denali's provision that would allow the pipeline developer to back out of the deal at any time, without making a termination payment to potential shippers, while a shipper has only until Feb. 1, 2011, to back out without owing a termination payment.

BP would like to see more information in the open season documents on how Denali proposes to calculate and implement negotiated rates for the pipeline, and how shippers can challenge recourse rates for the project.

BP, with the longest list of questions/objections of any of the producers or the state, supports implementation of a tracking system to account for the ownership of the natural gas liquids in the line, which Denali has said it is willing to accommodate. ConocoPhillips also raised the gas liquids tracking issue in its April 30 motion filed with FERC. In its open season proposal, Denali said it would permit the establishment of a gas component tracking system funded by the shippers but ConocoPhillips wants FERC to require agreement by all shippers on the line before Denali could establish the system.

ConocoPhillips also asks for more information on the cost-of-service components that would be included in a levelized pipeline tariff; more information on how Denali would handle any reductions in a shipper's maximum daily quantity in the line; and more information on how Denali would notify potential shippers of any design changes in the project and offer bidders the option of withdrawing their bids.

And ConocoPhillips objects to a provision that would limit a shipper's right to oppose certain filings by Denali before FERC, calling the provision "extremely broad".