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Construction of New Midstream Infrastructure: Perils and Pitfalls of Federal Regulatory Jurisdiction

William F. Demarest, Jr., Elisabeth R. Myers, Proceedings of 56th Annual Rocky Mountain Mineral Law Institute (2010)

Wellhead natural gas deregulation under the Natural Gas Policy Act of 19781 (NGPA) and the Wellhead Natural Gas Decontrol Act of 19892 (Decontrol Act), coupled with restructuring of the interstate natural gas pipeline industry under Order No. 636,3 have led to a significant realignment of cost responsibility for development of oil and natural gas infrastructure. Historically, interstate natural gas pipelines often built “to the wellhead.” [28-4] Financing of major interstate transportation systems was underwritten by the traditional bundled supply customers' minimum commodity bills,4 guaranteeing the pipeline a secure revenue stream. In today's restructured and deregulated climate, responsibility for underwriting infrastructure downstream from the wellhead has shifted largely to the producer sector. For example, Kinder Morgan's highly successful Rockies Express Pipeline was constructed through project financing in which the revenue stream supporting the financing of the multi-billion dollar project was secured by commitments from producers and marketers to pay demand charges under long-term firm transportation service agreements. This trend is especially noticeable in the midstream, where producers and independent gatherers, processors, and marketers have increasingly taken the lead on connecting new gas resources to the existing interstate pipeline grid. Similar trends have