More Major Pipeline Rate Increases to Come; Shippers to Face Uncertainty: Bentek Reports

Monday, June 06, 2011

Recent efforts by several major pipelines to dramatically increase rates and cut reliance on long-haul shipping are a sign of things to come for other pipelines being hit by shifting gas market supply dynamics, Bentek Energy said in a report last week.
Several pipelines will likely file similar rate cases and shippers will face significant rate uncertainty, Evergreen, Colorado-based Bentek said. The changes will hit captive shippers hard, but reduced variable costs in the rates could make Southeast and Gulf Coast gas supplies more competitive, the report said. Bentek is a unit of Platts.

Tennessee Gas Pipeline, Columbia Gulf Transmission and TransCanada PipeLines have all recently sought regulatory authority to hike their rates by 30% to 60%. The rate cases have been triggered by major gas supply shifts as customers in the Northeast are increasingly relying on gas from the Marcellus shale and the Rockies instead of traditional gas supplies from the Gulf of Mexico.

These patterns will not be limited to these three pipelines, Bentek said. "A number of other pipelines are facing underutilization, increasing contract risk and lower returns than their regulated rates were designed to produce. These conditions suggest that several additional rate cases with rate increases and rate design changes will be filed in the coming months."

Several pipelines, including Northern Natural Gas, Natural Gas Pipeline Co. of America and El Paso Natural Gas have more than 70% of their contracts expiring in the next three years, and their throughput dropped 2% to 6% from 2008 to 2010. However, unlike Columbia Gulf and Tennessee, these pipelines had double-digit rates of return on equity in 2009, with Natural's clocking in at 28%, said the report.
Shippers should keep an eye on the changes, Bentek said. "It will be increasingly important for pipeline shippers and market participants to monitor these pipeline metrics to avoid being blindsided by rate changes and rate restructuring."

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