Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Natural gas pipeline operator sued for denying access to rival gas processor, (Nov 5, 2015)

By Linda O’Brien, J.D., LL.M.

An operator of a natural gas pipeline has engaged in anticompetitive conduct by wrongfully terminating access to its pipeline by a competing natural gas processor, according to a complaint filed in the federal district court in Houston, Texas (PSI Midstream Partners, L.P. v. Targa Liquids Marketing and Trade, L.L.C., November 4, 2015).

Raw natural gas is processed to remove various products, known as natural gas liquids (NGLs), before being transported as dry natural gas. Removal of these products is accomplished at gas processing plants, called straddle plants, which are typically located on interstate pipelines. After separating the out the dry gas, the straddle plants are left with a raw mix of NGLs, which is transported to a centralized facility for fractionation, where the NGLs are separated into discrete NGL products, the complaint states.

According to the complaint, Mobil Oil built and operated a straddle plant in Cameron Meadows, Louisiana with a pipeline to a fractionator located in Lake Charles, Louisiana. Subsequently, Mobil sold the fractionator and pipeline to Targa Liquids Marketing and Trade, LLC and the straddling plant to WFS-Liquids Company. In November 2008, WFS and Targa entered into a five-year contract for the delivery of raw mix NGLs to Targa’s pipeline from the Cameron Meadows plant.

In 2009, PSI Midstream Partners acquired the Cameron Meadows plant from WFS and was assigned the contract with Targa. In 2013, Targa and PSI negotiated a two-year exchange agreement, expiring on October 31, 2015. The agreement doubled the fees for Targa’s services, provided for a guaranteed minimum volume to be sent to Targa’s fractionator, and required a $7 million irrevocable standby letter of credit from PSI. For the term of the agreement, PSI was never delinquent on any payment to Targa, the complaint alleges.

On October 28, 2015, Targa informed PSI that it would not extend the existing agreement or enter into a new agreement, and PSI would be shut out of the pipeline and fractionator entirely as of October 31, 2015. On October 31, 2015, Targa closed the valve to its pipeline connection at Cameron Meadows and shut off PSI’s access to the Lake Charles fractionator. As a result, PSI has shut down all operations at the Cameron Meadows plant, the complaint states.

PSI alleges that Targa’s straddle plants in Barracuda and Lowry directly compete with PSI’s Cameron Meadows plant. Targa was aware that its pipeline and Lake Charles fractionator were the “only game in town” and it is clear that its action to try to put PSI out of business was to control the gas processing market in Southwest Louisiana.

The complaint also alleges that there is no legitimate business reason for denying PSI access to deliver its products to Targa’s fractionator at Lake Charles. Targa is not currently utilizing its capacity for fractionating at Lake Charles, has capacity in its pipeline to transport raw make NGLS, and is not stopped from taking advantage from other potential commercial opportunities. By denying PSI access to the Lake Charles fractionator, Targa has eliminated PSI as a competitor in the processing market and became the only gas processor available to producers on Transco’s North High Island and West Cameron systems.

PSI asserts claims for tortious interference with a contract, price discrimination, and restraint of trade in violation of Section 2 of the Sherman Act. The action seeks injunctive relief, treble damages, pre-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 4:15-cv-03252.

Attorneys: D. Mitchell McFarland (Munsch Hardt Kopf & Harr, P.C.) for PSI Midstream Partners, L.P.

Companies: PSI Midstream Partners, L.P.; Targa Liquids Marketing and Trade, L.L.C.

News: Antitrust TexasNews