What's NEXT? NGL Extraction Rights

Written By Marie H. Buchinski and Kelsey J. Drozdowski

One year after commencing the oral portion of an Inquiry into NGL extraction rights from the common natural gas stream, the Alberta Energy and Utilities Board (AEUB), now the Alberta Utilities Commission (AUC), has recommended that NGTL adopt a receipt point allocation model, largely based on the NGTL “NEXT” proposal (D2009-009). While the scope of the initial inquiry was broad enough to encompass extraction practices relating to the natural gas stream transported on NGTL, ATCO Pipelines and AltaGas, AEUB recommendations for the adoption of the new extraction regime were made only in respect of the NGTL system. From here, NGTL will have a three-year transition period in which to fi le an amended tariff in compliance with the AEUB's recommendations, which will be monitored closely by industry participants particularly having regard to other recent developments, including the NGTL move to Federal jurisdiction. The ability of the AUC to implement the positions adopted in this inquiry are subject to considerable uncertainty.

Background

In June 2007, the AEUB initiated the inquiry into NGL extraction to determine, in the public interest, whether changes to existing conventions and practises for NGL extraction should be made having regard to the evolution of the Alberta natural gas market, pipeline/transportation, extraction, NGL and petrochemical industries; the pending expiry of the Alberta Ethane Policy; market deregulation; and anticipated future developments respecting ex- Alberta sourced gas, CBM, and intra-Alberta gas markets. The inquiry was the culmination of prior AEUB directions (Gulf Strachan, Solex) and industry consultations (the TransCanada Customer Advisory Council; Natural Gas Liquid Extraction Convention Task Force) which were unable to resolve perceived inequities in the existing NGL extraction practises.

Intended to be a comprehensive review of existing rules, contractual arrangements and practises regarding the extraction of NGL within Alberta, the AEUB heard from a diverse group of industry participants on three broad issues: NGL extraction, lean gas streaming; and co-streaming/side-streaming.

NGL Extraction

Consistent with the views of the AEUB in Gulf Strachan and Solex, the inquiry concluded that resource ownership should remain with the producer of the resource until the producer relinquishes ownership through a commercial contract. That is, contrary to the practise then existing on the NGTL system pursuant to which only export delivery shippers had an entitlement to contract regarding extraction rights, the AEUB recommended that producers have the right to NGL entrained in their produced gas, until the producer contracts away those rights. The AEUB acknowledged that a change to the NGL extraction convention could result in parties raising in another forum issues relating to the NGTL System rate design.

Most parties proposed that the AEUB should retain the current convention for NGL extraction or adopt a receipt point convention such as the NEXT model proposed by NGTL. Having regard to the ease of implementation, costs, and ability to resolve perceived inequities, the AEUB recommended the implementation of a receipt point model, largely based on the NEXT Model proposed by NGTL. The AEUB also considered that a receipt point convention would assist in attracting ex-Alberta gas to use existing Alberta infrastructure. The AEUB therefore recommended that, within three years, NGTL revise its tariff to reflect the new practise and that NGTL take steps to encourage the development of a competitive transparent NGL extraction rights market.

Lean Gas Streaming, Co-Streaming and Side-Streaming

The AEUB found merit in lean gas streaming and noted that all parties were supportive of the concept. The AEUB recommended that applications for new or facilities modifications be conducted on a case by case basis based on the public interest, including NGL recovery and potential effects on other facilities. The AEUB further recommended that industry pursue lean gas streaming on the NGTL System through a collaborative process, and thereafter develop by April 1, 2010, guidelines and criteria for lean gas streaming for regulator approval. The AEUB made a similar recommendation that co-streaming and side-streaming facilities be considered on a case-by-case basis, but did set out a list of guiding factors to be addressed in any future co-streaming or side-streaming application.