Marathon refutes Agrium's claims

Owners of inlet gas pipeline challenge claims that call for state regulation

Posted: Friday, October 29, 2004

Marathon Oil Co. has filed a response to a complaint filed by Agrium U.S. Inc. with the Regulatory Commission of Alaska in an attempt to have a pipeline owned and operated by Marathon and Unocal Corp. regulated as a common carrier.

That would make a portion of the capacity of the Cook Inlet Gas Gathering System (CIGGS) pipeline open to Agrium, which Agrium said would enable it to acquire the natural gas it needs to continue to operate its Nikiski fertilizer plant.

The dispute between Agrium and the CIGGS pipeline owners has nothing to do with the separate ongoing issue over Unocal's obligations to supply Agrium with natural gas under a contract signed in 2000 when Unocal sold the facility to Agrium.

Spokespersons for Agrium have said that unless a sufficient and steady supply of gas can be secured, the plant could be closed by the end of next year. That could mean the loss of hundreds of jobs directly and indirectly in the local economy.

In its Oct. 1 complaint to the RCA, Agrium argued that Marathon and Unocal hold an effective monopoly on the transport of gas from Cook Inlet's west side fields and that Marathon, which actually operates the line, is doing so in a way that limits access to resources.

Agrium argued that the CIGGS line has been operating as part of a total system of pipe and that state law gives the RCA the authority to regulate that system, which includes the Beluga Pipeline and Kenai-Nikiski Pipeline.

Agrium said regulating the CIGGS line as a common carrier would open its capacity to other shippers, such as Agrium.

But in a 41-page response filed Oct. 21, Marathon challenged several assumptions made by Agrium as well as its claim that there was historic precedent for making the CIGGS line a common carrier regulated by the RCA.

First, Marathon noted that this is the second complaint filed by Agrium with the RCA. The first was rejected "as legally unsound and factually insufficient" in an order issued by the commission April 27. This new filing, Marathon said, alleged "a few specific facts, but in a selective and misleading manner."

Those facts, Marathon argued, "do not begin to justify the sweeping generalized allegations Agrium made in its first complaint." Further, Marathon said that even in their best light, Agrium's new claims do not support commission jurisdiction over the CIGGS line.

Claims by Agrium that Alaska statutes, specifically the Pipeline Act, the Utilities Act and the Alaska Right-of-Way Leasing Act, provide the necessary jurisdiction are wrong, Marathon argued.

The CIGGS line, built in 1972, is a private asset used to move Marathon's and Unocal's own gas production from platforms in the MacArthur River gas field to Marathon/ConocoPhillips' LNG plant and the fertilizer plant. While some Unocal-owned gas continues to be delivered to the Agrium plant through the CIGGS line, the line has never been, nor can it now be, considered a common carrier, Marathon said.

Marathon maintains it should not be forced to become a common carrier merely because Agrium wants more gas.

Agrium has argued that making the CIGGS a common carrier is in the public interest.

Without regulated access to CIGGS, there would be no way to ensure transportation of gas from the west side of the inlet, Agrium said. Also, Agrium says the volume of nonodorized, high-pressure gas available limits its production. Further, Agrium said the price of gas to manufacturers and consumers has almost doubled in the last two years. The reason? Agrium claims Marathon and Unocal own and operate the plant "in a manner that forecloses or restricts exploration and development of natural gas reserves by other producers and their costumers."

Thus, regulating the CIGGS line could act to ensure "a competitive environment and an open market place. ," Agrium said in its filing.

Marathon disagreed, saying Agrium is doing little more than pursuing a short-term advantage and is exaggerating the benefits of regulation.

"Far worse, it ignores the serious costs and disruptions to others that would result if Agrium has its way," Marathon's filing said. Changing the CIGGS line to a common carrier could cost millions, Marathon said.

Agrium has claimed that it needs nonodorize, high-pressure gas for its plant and that only the CIGGS line can carry it across the inlet and that regulation could make otherwise inaccessible gas available to the fertilizer manufacturer and lower gas prices.

Marathon called those claims distorted and misleading, arguing that Agrium had identified no gas sources currently shut in that could be moved if the CIGGS offered common carriage. That's because "there are none," Marathon said, adding that Agrium had other means of securing gas from the west side.

As for CIGGS' ability to deliver high-pressure, nonodorized gas, Marathon said that claim was literally true but highly misleading, because it ignores what Agrium could do for itself. Agrium could use Enstar's Alaska Pipeline to move gas, though it is a low-pressure line.

"What Agrium really means is that Agrium does not want to incur the capital expense that would be necessary to enable Agrium itself to increase pressure and deodorize the gas on location at Agrium's plant site," Marathon said.

Marathon went on to question Agrium's real intent and to note what it called poor business judgments by Agrium.

"Agrium evidently made a serious business mistake when it purchased the fertilizer plant from Unocal without having adequate commitments for the gas supply needed to run the plant," Marathon said.

The successive filings with the commission, the company said, demonstrated Agrium's hope "of obtaining some short-term advantage from this commission" or that it hoped Marathon could "somehow be persuaded, coerced, or browbeaten to help solve problems arising out of Agrium's own business judgments. Marathon is sympathetic to Agrium's problems, although not to its regulatory tactics. Marathon is continuing to sell gas to Agrium when it can, but Marathon cannot solve Agrium's gas supply problems."

Marathon said it would not be opposed to operating the line as a common carrier in principle, but is unwilling to assume the unreimbursed capital costs of conversion and see its own production curtailed as a result of other gas occupying the CIGGS' limited capacity. Finally, Marathon said CIGGS owners should not have to face the prospect of costly and contentious rate and tariff proceedings as a price of committing the pipeline to public service.

The CIGGS line is not a "public utility" as Agrium claims, Marathon said. Simply because gas carried in the line may eventually end up used by public utilities, such as Homer Electric Association, does not make the private line subject to the Utilities Act, Marathon said.

Lisa Parker, spokesperson for Agrium, said she did not know if Agrium officials will file a formal response to Marathon's filing and declined to address allegations made by Marathon or respond to their positions.

"We have our filing with the RCA and we hope the RCA will take the issue up," she said Thursday.

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