National Fuel Gas Supply Corporation is now buying the right-of-way (ROW) for its Northern Access 2016 Project, a 24 inch diameter, 97 mile long gas pipeline from McKean County in Pennsylvania to the Town of Pendleton in Niagara County, New York to transport natural gas from Marcellus Shale gas wells in Pennsylvania to customers in New York and beyond.
In Erie County, 26.5 miles of pipeline construction will impact hundreds of landowners in the following towns: Sardinia, 8.24 miles; Colden, 7.08 miles; Aurora, 3.80 miles; Wales, 4.98 miles; Marilla, 1.93 miles and Elma, 0.02 miles.
National Fuel is now offering ROW easement contracts to Southtown landowners along the pipeline’s path. How National Fuel calculates one-time payments to landowners for the permanent use of their land can make a big difference to the landowner.
Acreage Method. National Fuel is calculating one-time ROW payments based on the acreage of the ROW (50 feet wide ROW times length).
Linear Foot Method. Pipeline companies in other states base one-time payments strictly on the linear length of the ROW crossing a property owner’s land.
Expected Revenues Method. Here is an alternative. Perhaps National Fuel ought to annually compensate the landowner a percentage of the market value of the gas flowing through the pipeline located on the landowner’s property.
Importantly, regardless of the method used to compensate the landowner, the ROW easement obtained by National Fuel is: (1.) permanent – that is, it is forever; (2.) the landowner can’t build on the ROW; and (3.) the landowner, not National Fuel, will continue to pay the local tax assessor property taxes on the ROW land – forever.
National Fuel multiplies the length, in feet, of the ROW crossing a landowner’s property times the 50 foot ROW width to determine the acres of land to be permanently made available to accommodate the gas pipeline. National Fuel is offering landowners about $3,000 per ROW acre.
One acre equals 43,560 square feet. A ROW length of 500 feet, times 50, equals 25,000 square feet or 0.57 acre resulting in a National Fuel payment offer of about $1,710. A ROW length of 1,000 feet, times 50, equals 50,000 square feet or 1.14 acres resulting in a National Fuel payment offer of about $3,420.
Linear Foot Method
Instead of multiplying the length of the pipeline ROW times the width to calculate acreage, the linear method simply sets a compensation level based on X dollars per foot of ROW.
A recent news story in the Wheeling, WV, Intelligencer/News Register, reports that the West Virginia Oil and Natural Gas Association considers $5 per foot for a pipeline ROW to be an adequate compensation. Using this compensation level, a 500 foot ROW would be valued at $2,500 and a 1,000 foot ROW at $5,000.
However, that news story also quotes a former West Virginia inspector for the state Department of Environmental Protection saying landowners should be getting $50 per foot, not $5 per foot, for a pipeline ROW. Using this compensation level, a 500 foot ROW would be valued at $25,000 and a 1,000 foot ROW at $50,000.
Expected Revenues Method
Once completed, National Fuel’s 97 mile pipeline will allow the company to transport 497,000 thousand cubic feet of natural gas to market each day. According to the U.S. Energy Information Administration, in April 2015 the price of one thousand cubic feet of natural gas delivered to residential customers was $10.40.
At the $10.40 per 1,000 cubic feet rate, if National Fuel sold all of the gas passing through the 97 mile (512,160 feet) long pipeline to homeowners the company would collect about $5,168,800 per day or $1,886,612,000 per year.
Paying landowners the equivalent of about $3 per foot to acquire the ROW along the entire 512,160 foot long pipeline would cost National Fuel, a one-time payment of about $1,538,480.
Let’s put National Fuel’s revenue flow vs. landowner’s payment into context. On a per foot of ROW basis, the value of gas flowing through a landowner’s ROW is worth to National Fuel about $3,683 a year ($1,886,612,000 divided by the pipeline’s length of 512,160 feet).
So, with an up-front, one-time payment to a landowner of say $3,000 for a 1,000 foot ROW ($3 per foot of ROW), National Fuel expects the value of the gas passing through that landowner’s property to be worth, to the company, about $3.6 million per year.
To level the playing field, just a small 0.00027% — twenty seven hundred-thousandths of one percent — annual royalty on the value of gas passing through a landowner’s 1,000 foot ROW would net the landowner about $1,000 per year ($3,683 X 1,000 X 0.00027).
Over 30 years that would net the landowner about $30,000 vs. a one-time payment of $3,000 (minus property taxes).
Is National Fuel’s ROW compensation method a fair deal for Southtown landowners?
Submitted by Ron Fraser, Small Town Civics administrator