Pipeline owners plan to boost rates

Shipping costs for Outside-bound oil may increase 40%

Posted: Thursday, January 04, 2007

FAIRBANKS - Federal regulators have let owners of the trans-Alaska oil pipeline boost what they charge to ship oil through the line, but shippers could get refunds from the owners later if the government determines the rates are too high.

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All five pipeline owners announced last month that they would increase their shipping rates for Outside-bound oil starting Jan. 1 by as much as 40 percent. The state of Alaska and two non-owner oil companies appealed to the Federal Energy Regulatory Commission to block the increase.

The commission last week put the appeal on hold pending the outcome of similar disputes over rate increases during the past two years.

In the meantime, the owners of the pipeline can start charging the new rates, "subject to refund," the commission said.

The rate increases from the past two years have also gone into effect subject to refund.

ConocoPhillips Transportation Alaska Inc., which owns 24 percent of the Alaska pipeline, announced the largest increase for 2007, boosting its rates to $5.29 from $3.78 per barrel of oil destined for out-of-state locations.

BP Pipelines (Alaska) Inc., which owns slightly over half the line, and Exxon Mobil Pipeline Co., which owns 20 percent, both raised rates by $1.02 per barrel, from $4.08 and $3.93 respectively.

Oil company representatives told FERC last month that the per-barrel price must rise because the pipeline's operating costs will be covered by less oil in the coming year. North Slope oil production is declining.

The commission on Thursday said none of the parties to the dispute objected to its order on the 2007 rates, known in the industry as tariffs.

However, the underlying dispute over the rate increases has been hotly contested before FERC, with recent hearings featuring sharp cross-examination of witnesses.

The state of Alaska has objected to recent rate increases because they reduce the state's income.

The state's taxes are based on the value of the oil at the wellhead, after transportation costs such as the pipeline tariffs are deducted from the sale prices Outside. So higher rates mean less money for the state.

Anadarko Petroleum Corp. and Tesoro Corp. also objected to the rate increases. Neither owns a share of the pipeline.

Anadarko, which produces about 20,000 barrels per day from the North Slope's Alpine field, does not pay the tariffs directly. It sells its oil at the wellhead, said Mark Hanley, the company's spokesman in Anchorage. However, higher tariffs reduce the amount Anadarko's customers are willing to pay for the oil, since those customers must also pay the tariffs, Hanley said.

"We think the rates are too high, and we are appealing to FERC to set a fair rate," Hanley said Tuesday. "They're going to go through all the evidence and hopefully set that. It's going to improve the economics of exploration for new oil and improve the economics of the oil we already have."

The state, Anadarko and Tesoro all pointed out in arguments before FERC that oil bound for destinations within Alaska flows at less than half the price of oil bound for Outside.

Pipeline owners say that's because the state regulatory commission has set an artificially low price that refuses to recognize a long-standing settlement agreement between the state and the pipeline owners.

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