SETTLEMENTS REDUCE TAKE OR PAY EXPOSURE

Jan. 1, 1990
U.S. interstate gas pipelines had unresolved take or pay exposure totaling $2.3 billion as of last Sept. 30, the Interstate Natural Gas Association of America reports. Ingaa said, "In spite of continuing settlements between natural gas producers and interstate pipelines from April through September 1989, take or pay exposure remains substantial." Settlements reduced the exposure figure from $2.7 billion at the end of last March, but the latest total includes fresh take or pay exposure incurred

U.S. interstate gas pipelines had unresolved take or pay exposure totaling $2.3 billion as of last Sept. 30, the Interstate Natural Gas Association of America reports.

Ingaa said, "In spite of continuing settlements between natural gas producers and interstate pipelines from April through September 1989, take or pay exposure remains substantial."

Settlements reduced the exposure figure from $2.7 billion at the end of last March, but the latest total includes fresh take or pay exposure incurred by 14 lines.

Ingaa surveyed 24 pipelines representing 91 % of deliveries to the U.S. gas market.

Nineteen of them reported take or pay exposure.

Ingaa's report said from $900 million to $2.3 billion in outstanding exposure could be resolved under the Federal Energy Regulatory Commission's powers spelled out in Section 5 of the Natural Gas Act, but FERC declined to use those powers when it recently issued a revised Order 500 (OGJ, Dec. 25,1989, p. 35).

Ingaa also said Order 500's crediting mechanism so far has been ineffectual. Less than 2% of the volumes transported resulted in credits under the mechanism for April-September 1989. For the period, the average buyout rate was 370 on the dollar.

POTENTIAL EXPOSURE

Ingaa said there still is a potential for significant take or pay exposure. Fourteen of the lines surveyed expected to incur about $400 million in exposure during fourth quarter 1989. And about 68% of the projected 1990 deliverability for 18 pipelines will be governed by take or pay contracts.

The same 18 lines estimated that 31% of their 1990 projected deliverability will flow under contracts with take or pay clauses that are subject to FERC's Natural Gas Act jurisdiction.

Ingaa noted its take or pay estimates are higher than those reported earlier by the Natural Gas Supply Association but explained, "The NGSA survey includes many major gas producers but few independent producers.

"The lack of independent producer representation in the NGSA survey seriously undercuts the producers' argument that take or pay obligations have shriveled."

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