U.S. GAS PIPELINE CONTRACT CARRIAGE VOLUME ON THE RISE

Contract carriage by U.S. gas pipelines increased again in 1990, amounting to 79% of all interstate deliveries. The Interstate Natural Gas Association of America reported total pipeline deliveries in 1990 grew 1% to 17.1 quadrillion BTU (quads). Of that volume, contract carriage accounted for 13.4 quads, a 12% increase from 12 quads in 1989.

Aug. 5, 1991

3 min read

Contract carriage by U.S. gas pipelines increased again in 1990, amounting to 79% of all interstate deliveries.

The Interstate Natural Gas Association of America reported total pipeline deliveries in 1990 grew 1% to 17.1 quadrillion BTU (quads). Of that volume, contract carriage accounted for 13.4 quads, a 12% increase from 12 quads in 1989.

Ingaa said, "Regulations aimed at furthering competition and comparability in the gas industry have left the regulated pipeline with a diminished merchant function-so diminished that firm transportation as a percent of total gas delivered for market surpassed pipeline sales in 1990." Firm transportation accounted for 28% of the total volume delivered for market, while pipeline sales captured only 21%.

This shift from sale to firm transportation shows the extent to which pipeline customers have access to and are choosing alternatives to the pipeline merchant function, Ingaa said. What's more, the trend demonstrates intense competition for gas sales created by the Federal Energy Regulatory Commission's open access rule.

The report also said a steady reliance on carriage by end users and distributors became evident in 1990, as their quarter to quarter use of carriage as a percentage of the total volume delivered for market fluctuated by no more than 5 percentage points.

But it noted that marketers' use of carriage fluctuated considerably, swinging by almost 15 percentage points between quarters.

"This movement on the part of users of natural gas is highly indicative of the advances made in achieving comparability by pipelines and others offering merchant services," Ingaa said.

"The relationship developing between marketers and pipeline sales is one of direct competition, with marketers dominating overall for most of the last 2 years."

RELAXED RULEMAKING

Jerry Halvorsen, Ingaa president, called FERC's attention to the report's findings. In a letter to FERC commissioners, he said the findings would support a relaxation of FERC's pending comparability of service rulemaking.

"I believe these high levels of carriage and firm transportation, coupled with the decline in pipeline sales, are clear indications the pipeline industry is well on its way to comparability.

"Interstate pipelines are no longer a dominant provider of merchant services. Our customers are already using firm transpiration as an effective means to access and secure various sources of alternate gas supply. Moreover, existing, filed, and future settlement agreements negotiated with customers will further accelerate this trend."

He said the pending rulemaking has a number of rigid comparability conditions, such as complete unbundling of services, contract storage, and production-area pooling points that might seem acceptable individually but taken as a whole could lead to reduced economies of scale for aggregation and transmission, higher costs to implement comparability, and a merchant function that is economically and operationally infeasible for a number of pipelines.

He recommended that FERC's rule adopt a flexible approach that encourages pipelines to increase customer choices by offering bundled and unbundled services at the city gate, resulting in the lowest possible amount of implementation costs.