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FERC approves phased approach for Cheniere's Midship pipeline

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FERC approves phased approach for Cheniere's Midship pipeline

The Federal Energy Regulatory Commission granted a change in the permit for an approximately 1.4-Bcf/d natural gas pipeline project partly owned by Cheniere Energy Inc. that will allow much of the pipeline to enter service on a date that appeases committed shippers even as the developer looks for other customers for the rest of the gas transportation capacity.

In a Sept. 6 order amending the Natural Gas Act certificate for the Midcontinent Supply Header interstate pipeline project, or Midship, FERC also found Midship Pipeline Co. LLC's proposed initial recourse rates and fuel retention percentage for the interim project to be reasonable.

FERC issued the original certificate for the Midship pipeline in August 2018. The certificate authorized Midship to build and operate the 200-mile mainline pipeline in Oklahoma, two lateral pipelines, three compressor stations and other facilities. The project is designed to provide gas transportation service from the SCOOP and STACK resource plays in the Anadarko Basin to connections with pipelines near Bennington, Okla., where the gas can move to the Gulf Coast and the Southeast, including LNG export terminals. Midship Pipeline is owned by Midship Holdings LLC, which is indirectly owned by Cheniere and funds or companies managed by EIG Management Co. LLC. Cheniere owns the Sabine Pass LNG terminal in Louisiana and the Corpus Christi LNG terminal in Texas.

Out of the approximately 1.4 Bcf/d of total design capacity, four shippers — Cheniere, Devon Energy Corp., Marathon Oil Corp.. and Gulfport Energy Corp. or their affiliates — have signed long-term agreements for over 0.9 Bcf/d. To meet the requests of firm shippers for service as early as possible, Midship proposed to phase construction of the project. It will first build all facilities authorized in the certificate order except for three compressor units, one at each of the three compressor stations. This will allow Midship to provide up to about 1.1 Bcf/d of interim firm transportation service, enough to meet its firm service obligations.

Midship will build the last three compressor units "upon further commercialization" of the project, according to the FERC document.

In February, the pipeline developer received a final notice to proceed with construction from FERC. In a March 1 news release, Midship said it expected to place the pipeline in service by the end of the year. Two years before, in the May 2017 application for the project, Midship had targeted an in-service date in April 2019.

In July, FERC temporarily stopped work on a section of the project because of erosion and other environmental compliance concerns.

As part of the phased-in plan, Midship asked FERC for authorization to use interim cost-based recourse rates for the interim service. The company proposed an interim monthly recourse reservation charge of $13.2416/Dth and an interim usage charge of $0.0031/Dth for firm transportation. Midship also proposed an interim recourse rate of $0.4385/Dth for interruptible transportation, authorized overrun service, and parking and loan service. Midship designed the rates based on a total first-year cost of service of $174.8 million and annual billing determinants of 13.2 million Dth.

Midship estimated the total cost for the project, excluding the three compressor units, at about $971.3 million. When Midship applied for the project, the cost was estimated at just over $1 billion. (FERC dockets CP17-458 and CP17-458-001)