Gas Projects in the Hopper - Are Open Seasons a Leading Indicator?
Most pipelines that intend to create additional pipeline capacity or build a new extension will solicit bids for that capacity through a process called an “open season.” These open seasons can serve as a leading indicator of future projects. Does an open season indicate that anchor shipper commitments are firmed up? And what open seasons are pending for companies such as Enbridge, Williams, and others?
Those anticipating possible new pipeline additions, or hoping to anticipate changing market dynamics or potential increases in a pipeline’s revenue are wise to keep track of the announcements for these events.Today, we look at the underlying purpose of these open seasons and how far in advance of a FERC filing they may occur, and we look at pending open seasons that may presage future filings at FERC.
Why Hold an Open Season?
FERC policy is to allocate available interstate pipeline capacity to the shipper that values it the most, up to the maximum rate. Unless a pipeline is willing to expand capacity sufficient to meet the demand of all bidders willing to pay the maximum tariff rate, FERC favors the use of an open season so that the pipeline can allocate the available capacity to those who value it the most. One common method for allocating capacity to such shippers is to measure the net present value (NPV) for each bid received and to award the capacity to those bids that collectively create the highest NPV for the pipeline. Factors determining NPV are price, volume of gas, and duration of the contract. FERC has stated that a “net present value evaluation ... allocates capacity to the shipper who will produce the greatest revenue and the least unsubscribed capacity. As such, it is an economically efficient way of allocating capacity and is consistent with Commission policy.”
In the event that there is not sufficient capacity to meet all equal bids, pipelines apply a tiebreaker mechanism. One such mechanism is the pro rata allocation methodology. In the event that there is not sufficient capacity to meet all qualifying bids, the capacity is allocated pro rata, i.e., based on the ratio of each shipper’s respective bid quantity as applied to the total available capacity.
The Role of Anchor Shippers
Some pipelines will not hold an open season until it has commitments from anchor shippers sufficient to make the project viable, and they will use the open season as a way to determine whether additional facilities may be built on an economically viable basis to meet additional market demand for capacity. As shown in the chart below, one cannot always be certain that a pipeline company will hold an open season before it asks to use FERC’s pre-filing process, but once filed, an open season can be an early indicator that a project will be filed.
Recently Announced or Finalized Open Seasons
A number of companies have announced or finalized open seasons in the last few months, which could lead to a filing with FERC in the near future. These projects include:
Williams’ Regional Energy Access Project
On March 8, 2019, Williams announced that it was holding an open season until April 8, 2019 for its Regional Energy Access Project. The project is designed to provide 1 Bcf of capacity from receipt points on Transco’s existing line starting in Luzerne County, Pennsylvania, to delivery points in Pennsylvania and New Jersey, including Mercer County, New Jersey and Northampton County, Pennsylvania, and along Transco’s mainline to Station 200, Marcus Hook lateral and Trenton Woodbury lateral. For those who have been following the problems that PennEast has encountered in trying to obtain the necessary permits for its project to move forward, this route and capacity should sound familiar. PennEast “will originate in Dallas, Luzerne County, in northeastern Pennsylvania, and terminate at Transco’s pipeline interconnection near Pennington, Mercer County, New Jersey” and is designed to transport one Bcf/day. Provided the Transco open season is a success, one could expect a pre-filing in the next two months.
Southern Star Central’s Non-Binding Open Seasons
Southern Star held two non-binding open seasons that ended on January 31, 2019. The key feature of a non-binding open season is that a shipper is not obligated to acquire the capacity described in its bid in the open season. As Southern Star described it, the open season is an invitation for parties interested in firm transportation capacity “to submit non-binding service requests” to assist Southern Star in determining whether to pursue the proposed expansion projects and in defining the final parameters of such projects. Specifically, Southern Star was assessing interest in a Midwest Market Access compression project that would provide the growing SCOOP and STACK production plays more access through Southern Star's production area and into its market area and a Southeast Expansion to allow the growing SCOOP and STACK production plays more access to TexOk markets off NGPL.
Enbridge’s TETCO Cameron Lateral Expansion
TETCO held an open season that ended on December 14, 2018 for the expansion of its Cameron Lateral. The anticipated project in-service date is November 1, 2021. The total volume available in the open season was up to 1 Bcf/d, with 700,000 Dth/d from Texas Eastern’s mainline, at the head of the Cameron Lateral, near its existing Gillis compressor station, a total of 500,000 Dth/d at a new interconnect with Trunkline, on Texas Eastern’s Cameron Lateral and deliveries up to 750,000 Dth/d to TransCameron Pipeline just south of Texas Eastern’s existing Grand Chenier compressor station. If this open season was successful, one could expect a pre-filing for this project in the near future.
MDU Resource Group’s WBI North Bakken Expansion Project
WBI Energy held an open season in June and July of 2018 for a proposed North Bakken Expansion Project that is designed to provide 200 dth/day of natural gas transportation capacity from core Bakken production areas near Tioga, North Dakota, and extending to a new connection with Northern Border Pipeline in McKenzie County, North Dakota. In January of this year, WBI announced that it planned to use FERC’s pre-filing process and suggested that it would file by the end of the first quarter.
Insights Coming Soon
- Litigation Update on ACP/MVP
- MLP ADIT balances