Alaska Administrative Code
Title 11 - Natural Resources
Part 3 - Oil and Gas
Chapter 25 - Royalty Election Under Alaska Gasline Inducement Act
11 AAC 25.110 - Alternative destination value for residue gas and methane in unprocessed gas

Universal Citation: 11 AK Admin Code 11 AAC 25.110

Current through August 30, 2024

(a) If, for a royalty reporting period, the published price designated by the commissioner for residue gas and methane in unprocessed gas reaching destination after entry into a first destination market serviced by the Canada mainline is less than 95 percent of the alternative value calculated under this section, the destination value for that royalty reporting period is the alternative value calculated under this section.

(b) The alternative destination value calculated under this section is based on a market basket of published prices for residue gas. The market basket includes published prices designated by the commissioner for each market center designated by the commissioner.

(c) For purposes of calculating alternative destination value under this section, the commissioner will designate market centers where

(1) the published price identified under (j)(1)(B) of this section is reported for the same date or period as the published price for other market centers to be used in the market basket; and

(2) the market center is either
(A) a first destination market; or

(B) a first market center under (i) of this section.

(d) The published price for each market center designated under (c) of this section is netted back from the location of the delivery point most directly associated with the published price for the market center to the point a pipeline supplying the market center interconnects with the Canada mainline. Netting back is based on the weighted average of the pipeline tariffs between the point of interconnection to the Canada mainline and the location of the delivery point most directly associated with the published price for the market center. A tariff used for purposes of this subsection is the simple average recourse rate

(1) for firm transportation services for the calendar year immediately preceding the year of the royalty reporting period; and

(2) calculated based on a 100 percent load factor.

(e) The published price for each market center designated under (c) of this section, after netting back to the point of interconnection to the Canada mainline under (d) of this section, will be weighted. Weighting under this subsection is on the basis of MMBtus shipped or delivered in the preceding calendar year as follows:

(1) for the market center of a first destination market that is not in a region that produces and exports more gas than it consumes, the quantity to be used to determine the weighted published price is the quantity of gas delivered into a pipeline directly servicing both the project and the market center in the preceding calendar year;

(2) for the market center of a first destination market that is in a region that produces and exports more gas than it consumes, the quantity to be used to determine a weighted published price is the quantity of gas consumed in that market in the preceding calendar year;

(3) for a market center that is a first market center downstream of a first destination market in a region that produces and exports more gas than it consumes, the quantity to be used to determine a weighted published price is the quantity of gas received into the pipeline most directly connecting the first destination market and that first market center and nearest to the market center.

(f) After the published price for each market center designated under (c) of this section is netted back to the point of interconnection to the Canada mainline under (d) of this section and weighted under (e) of this section, the weighted price is netted forward from the point of interconnection to the Canada mainline to a lessee's destination for qualified gas entering a first destination market. The lessee's costs of transportation allowed by this chapter between the point of interconnection to the Canada mainline and destination is used to net the weighted price forward.

(g) The department will make the calculations described in (d) and (e) of this section and post them to the department's website at least 15 days before an affected royalty report is due. If a market center does not meet the criteria set out in (c) of this section for a royalty reporting period, that market center will not be used for that royalty reporting period in making the calculations described in (d) and (e) of this section.

(h) Market centers and published prices designated by the commissioner will be posted by the commissioner on the department's website. Based on the criteria set out in (c) of this section, the commissioner may add to, replace, or remove entries on the list of designated market centers and published prices by posting a revised list on the department's website at least 15 days before the first day of a royalty reporting period that is affected by the revision, if the commissioner determines that

(1) market centers meeting the requirements of (c) of this section have changed;

(2) a designated published price is not reliable;

(3) a designated published price is published in a publication that is not reliable;

(4) a new publication is started, an existing publication adds a new price, or a previously unreliable publication becomes reliable;

(5) a person or an affiliate of the person subject to this chapter attempts to influence the publication of prices used under this section in a manner adverse to the interests of the state; or

(6) other factors relevant to the designation of market centers under (c) of this section or to the reliability of published prices support the addition, replacement, or removal of entries on the list of designated market centers and published prices.

(i) For purposes of this section, a market center is a first market center if

(1) it is directly connected to and downstream of a first destination market;

(2) the first destination market identified under (1) of this subsection is in a region that produces and exports more gas than it consumes;

(3) there is not another market center between the first destination market identified under (1) of this subsection and the market center; and

(4) more than 250,000 MMBtus of residue gas are shipped on average each day from the first destination market identified under (1) of this subsection to the market center.

(j) In this section,

(1) "market center" means a location or area
(A) where more than 25,000 MMBtus of residue gas are sold in arm's length transactions on average each day; and

(B) for which a reliable and widely available industry trade publication publishes a reliable price for the market center based on at least five unrelated arm's length sales of residue gas at that market center in the royalty reporting period and in at least nine of the preceding 12 calendar months;

(2) "netting back" means to calculate the price or value of gas at an upstream location based on the price or value of gas at a downstream location, minus the costs of transportation between the upstream and downstream locations;

(3) "netting forward" means to calculate the price or value of gas at a downstream location based on the price or value of gas at an upstream location, plus the costs of transportation between the upstream and downstream locations.

Authority:AS 38.05.020

AS 38.05.180

AS 43.90.310

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