ANR Pipeline Co.
Address:
500 Renaissance Center
Detroit, Michigan 48243
U.S.A.
Telephone: (313) 496-0200
Fax: (313) 496-3299
Statistics:
Wholly Owned Subsidiary of Coastal Corporation
Incorporated: 1945
Employees: 2,039
Sales: $820.7 million (1995)
SICs: 4922 Natural Gas Transmission
Company Perspectives:
ANR is committed to being the highest value provider of natural gas services to our customers.
Company History:
ANR Pipeline Company, a subsidiary of the Coastal Corporation, operates one of the largest interstate natural gas pipeline systems in the United States. Through its 12,600 miles of pipeline and 200 billion cubic feet of underground storage, ANR provides transportation, storage and various capacity-related services to a variety of customers in both the United States and Canada.
Company Origins
ANR Pipeline was founded as the Michigan-Wisconsin Pipe Line Company on July 25, 1945, by the large utility holding company American Light and Traction. American Light and Traction was the parent company of the Michigan Consolidated Gas Company, the largest gas company to serve the Detroit region. Until the 1930s, communities like Detroit that were located away from natural gas fields had relied exclusively on gas produced from coal. This manufactured gas produced comparatively little heat per unit burned, and, although gas had been used extensively for lighting and cooking, the cost of gas heating was prohibitive. In the mid-1930s natural methane gas had been used in small areas of Michigan on an experimental basis, and it was found that, with natural gas's higher heat value, gas costs for home heating could be cut by about 50 percent. American Light and Traction entered into an agreement with the largest natural gas supplier at that time, the Panhandle Eastern Pipeline Company, to extend as far as Detroit the Panhandle pipeline which then ran from the abundant Texas gas fields to Indianapolis. Detroit was converted entirely to natural gas in 1936, and by 1943 Michigan Consolidated's sales of gas for home heating had almost doubled.
While residential gas sales soared, American Light and Traction entered into a long and bitter dispute with Panhandle Eastern over supply to the industrial sector. Industrial gas sales were not subject to government regulation as residential sales were, so that Panhandle Eastern was free to sell gas directly, and at a lower cost, to Detroit industry. Michigan Consolidated insisted that these industrial incursions violated the agreement between the companies, but the utility's bargaining position was severely weakened by its complete dependence on Panhandle Eastern's gas supply. In response to this pressure, American Light and Traction made the critical decision to enter the pipeline business themselves, and Michigan-Wisconsin Pipeline was founded in 1945 to allow American Light and Traction to transport gas directly from the Texas gas fields to the company's utility subsidiaries in Michigan and Wisconsin.
The Michigan-Wisconsin pipeline was met by bitter opposition from Panhandle Eastern as well as from the United Mine Workers and the National Coal Association. Coal interests feared that an abundance of cheap natural gas would mean the end of gas manufactured from coal as well as stiff competition to coal-powered home heating. In spite of these objections, in 1947 the Federal Power Commission finally approved the company's application to build a $52 million, 1,800-mile-long pipeline from Texas to the Detroit-Ann Arbor area and to sections of Wisconsin, Missouri and Iowa. The pipeline's difficulties did not end with the FPC approval as steel shortages and bad weather forced further delays and cost overruns. With the demand for natural gas for home heating and industrial use soaring, however, there was little doubt that the struggle would be worthwhile, and even before the pipeline was completed Michigan-Wisconsin applied to the FPC for authority to double its capacity. On November 1, 1949, the Michigan-Wisconsin Pipeline began operations with 1,500 miles of pipe and three compressor stations. The pipeline ran from Hansford County in Northern Texas through Oklahoma, Kansas, Nebraska, Missouri and Iowa to "Wisconsin Junction," Illinois, where it branched in two with one line to serve Michigan and the other Wisconsin. Although the pipeline would be expanded and capacity increased many times over the course of the next fifty years, this basic route would remain the core of Michigan-Wisconsin's pipeline system.
Expansion in the 1950s and 1960s
Only two years after the completion of the Michigan-Wisconsin Pipeline, in 1951, the company was furnishing all gas requirements for the Milwaukee Gas Light Co. and the majority of the gas used by Michigan Consolidated in addition to serving 14 smaller utility customers in Wisconsin, Michigan, Iowa and Missouri. Annual sales rose to over $27 million. One of the primary uses for the company's natural gas was to heat homes and offices through the rough Michigan and Wisconsin winters, and gas requirements were therefore highly variable throughout the year. The problem of seasonal demand was ingeniously solved by using gas fields in central Michigan as huge natural storage tanks into which excess gas could be pumped in the summer when demand was low and then exploited during the peak winter months.
As demand for gas grew in the early 1950s, the problem of supply became acute, and gas distributors across the country were forced to place tight restrictions on new sales. Fortunately, discoveries of large natural gas reserves along the Louisiana Gulf Coast were made at this time. American Natural Gas Company, the new name for Michigan-Wisconsin's parent company, moved quickly to exploit this new resource. In 1953 the company formed the American Louisiana Pipeline Company to build a second major pipeline from southern Louisiana to Detroit. Construction on the $130 million pipeline was completed in 1956, and in 1965 the American Louisiana and Michigan-Wisconsin systems were joined.
Through the 1950s and 1960s Michigan-Wisconsin continued to expand its pipeline system both by increasing capacity of existing lines and by extending pipelines into new gas producing areas. Michigan-Wisconsin's major pipeline system from Texas to Michigan and Wisconsin was almost entirely "looped" during the late 1950s. "Looping" involves the laying of a secondary pipeline parallel to the main line, and this process allowed Michigan-Wisconsin to double the gas transportation capabilities of the system without greatly increasing the quantity of compressor fuel needed to transport the gas. Fourteen new compressor stations were built during the same period. New gas gathering lines were constructed in Oklahoma to transport gas from the Laverne, Cederdale and Lovedale fields in the Anadarko Basin area of that state and gas reserves in Kiowa County, Kansas, also began to be exploited by the company. In 1967, Michigan-Wisconsin extended its pipeline system into the Gulf of Mexico with the purchase of an 80 mile offshore line from one of its suppliers. It was also during this period that Michigan-Wisconsin first made purchasing agreements for the abundant supplies of Canadian natural gas that were made available by the construction of the TransCanada Pipeline. A 1960 contract with the Midwestern Gas Transmission Company promised to deliver 158 million cubic feet a day of Canadian gas to Michigan-Wisconsin through the company's 178 miles of newly constructed trunk lines in northern Wisconsin.
Gas Shortages in the Late 1960s and 1970s
In the late 1960s Michigan-Wisconsin began to search for more direct access to the large Canadian gas reserves, and in 1968 the company formed a joint venture with TransCanada Pipelines to construct a $210 million, 1,000 mile pipeline from the Canadian border in Manitoba to southern Michigan. Called the Great Lakes Gas Transmission Company, this pipeline would remain a crucial link in the Michigan-Wisconsin system into the 1990s both by providing gas to Michigan-Wisconsin's primary markets in Michigan and Wisconsin and by facilitating the sale of transportation services to other natural gas companies. By the late 1960s Michigan-Wisconsin had become the single largest supplier of natural gas to Michigan Consolidated and Wisconsin Gas Company both fellow subsidiaries of the American Natural Gas Company, as well as to 38 non-affiliated gas companies in Michigan, Wisconsin, Indiana, Illinois, Kansas, Missouri, Ohio and Tennessee. In 1970, operating revenues had reached $306 million on sales of 704 billion cubic feet of natural gas.
The 1970s were a period of continued high demand for natural gas. By 1976 the problem of supply had become so severe that Michigan-Wisconsin was forced to institute a sales curtailment that limited the gas supplied to many of its customers. In response to these pressures, Michigan-Wisconsin joined with four other pipelines to build a $350 million pipeline in the offshore Texas gulf. The High Island Offshore System (HIOS) could transport a total of up to two billion cubic feet of gas a day, about 200 million cubic feet of which would be processed through the Michigan-Wisconsin system. As one of the nation's largest interstate pipeline systems, Michigan-Wisconsin was in a position to offer gas transportation and storage services to smaller operations. These services began to contribute significant revenues to the company during the 1970s, climbing from $36 million in 1975 to $118 million in 1982. By 1980, the storage component of these services had become so lucrative that Michigan-Wisconsin's parent, now named the American Natural Resources Company, decided to found a new subsidiary, ANR Storage, to manage the storage needs of non-affiliated companies. Michigan-Wisconsin, however would continue to earn substantial revenues for transporting gas to and from the ANR Storage fields and to offer "bundled" gas services to utilities that included gas supply, transportation and storage commitments.
Deregulation and Restructuring in the 1980s
The natural gas industry underwent substantial restructuring in the early 1980s. Once characterized by a very low-priced product, secure markets and pervasive regulation, the industry now faced wellhead price deregulation and increased competition. To make matters more difficult for pipeline companies, the recession of the early 1980s seriously reduced the demand for natural gas particularly on the part of industry. The gas shortages of the mid-1970s became surpluses in the early 1980s as pipeline volumes dropped 26 percent from 1978 to 1982. Pipeline companies, however, remained saddled with long-term contracts with producers signed during the 1970s that provided high deliverability regardless of market demand. These "take or pay" obligations became the central issue in a lengthy rate dispute with the Federal Energy Regulatory Commission (FERC), which maintained that the advance payments should not be factored into rate increases. Michigan-Wisconsin eventually reached a settlement with the FERC that allowed partial recovery of the "take or pay" payments.
Contrary to initial expectations, government deregulation of the gas industry in the 1980s led to lower rather than higher prices at the wellhead. In spite of poor overall performance in the pipeline industry, Michigan-Wisconsin managed to maintain respectable sales and profits throughout the 1980s. Key to this steady performance in the face of increased competition and lower prices was the company's ability to capture the growing gas transportation market. The relative abundance of gas that had led to lower prices also meant that industrial users were shopping around for their gas supplies and in need of transportation services to deliver this gas to their businesses. By 1985, Michigan-Wisconsin had become the second largest transporter of gas for others in the industry. Led by gains in these services the company's sales rose to $2.4 billion.
Michigan-Wisconsin's parent company, American Natural Resources, undertook a major restructuring and diversification program in the early 1980s in partial response to the changing conditions of the natural gas industry. As part of this reorganization, in 1984, the Michigan-Wisconsin Pipe Line Company's name was changed to the ANR Pipeline Company in order to identify the company more closely with its parent. In addition, ANR's utilities, Michigan Consolidated and Wisconsin Gas, were spun off, removing the company from the marginally profitable gas distribution industry. Under charismatic chairman, Arthur R. Seder, ANR's reorganization plan included the canceling of a proposed $1 billion pipeline joint venture that would have brought Canadian gas from Alberta to markets in the New England states. Ironically the CanAm pipeline was abandoned in favor of an ultimately unsuccessful coal gasification plant, a partial return to the company's coal-based gas of the 1930s.
Acquisition by Coastal Corporation in 1985
In 1985 American Natural Resources was acquired by Coastal Corporation. The takeover began as a hostile bid, but at the eleventh hour the two companies reached an amicable agreement that allowed ANR to retain its top management. Coastal, a diversified energy company with annual revenues of about $6 billion, already owned the Colorado Interstate Gas Company, one of the oldest and largest pipeline companies in the western half of the country. The addition of ANR would make Coastal the second largest natural gas company in the United States.
Under Coastal, ANR Pipeline undertook a number of joint ventures to expand their pipeline system. Stretching from the New York-Canada border to Long Island, the Iroquois Pipeline provided key access to Canadian natural gas for the northeastern states. The Empire State Pipeline, completed in 1993, also extended ANR's link to Canadian gas for the eastern United States. The creation of a gas hub in Lebanon, Ohio, in the early 1990s provided an interconnection point between ANR's main pipeline system and the major supply and delivery routes of other pipeline companies. In the mid-1990s, ANR announced plans for a joint project with TransCanada Pipelines that would extend the company's pipeline system into Vermont and Maine.
Withdrawal from Natural Gas Merchant Services in the 1990s
The 1980s deregulation of the natural gas industry culminated in 1992 with the Federal Regulatory Commission's megarestructuring ruling, called Order 636. Since the mid-1980s, small gas producers and distributors had complained that interstate pipeline companies offered unfair competition by bundling gas sales with transportation and storage services. These bundled service contracts meant that utilities were often not able to shop around for the lowest priced gas without paying more for transporting that gas. The FERC ruling sought to ensure that the large interstate pipelines provide equal services for all gas suppliers by forbidding the pipelines from offering packages that tied gas sales with gas transportation and storage. After extended negotiations with the FERC over the implementation of this ruling, Coastal decided to take ANR out of the gas supply business altogether and to transfer responsibility for all gas marketing services to a separate subsidiary to be called the Coastal Gas Marketing Company. As of November 1993, ANR Pipeline no longer offered merchant services but concentrated instead on the provision of transportation, storage, gathering and balancing of natural gas for its customers.
The elimination of gas sales had an immediate impact on ANR's revenues which dropped from $1.3 billion in 1993 to only $821 million in 1995. Net income, however, remained relatively steady as almost all of ANR's former gas sales customers chose to retain the storage and transportation services previously included in their "bundled" gas sales services. These services yielded higher and more predictable profit margins than the more volatile gas sales and promised to maintain ANR Pipeline's position as a profitable member of Coastal Corporation's group of companies into the late 1990s.
Further Reading:
"ANR: Expanding Out of Natural Gas Puts Pressure on Earnings," Business Week, May 23, 1983, p. 138.
"ANR, Paneastern to Share Ohio Gas Line," Oil and Gas Journal, March 19, 1990, p. 24.
Bodwin, Amy, "ANR Seeks New Revenue Sources," Crain's Detroit Business, January 4, 1993, pp. 1, 20.
"Building on Integrity: ANR Pipeline Company," Coastal World, Fall 1990, pp. 10-11.
Clark, Robert, "Not with a Bang," Financial Planning, July 1985, pp. 218-20.
Ivey, Mark, and Edid, Maralyn, "The Oil Patch's Slickest Takeover Yet," Business Week, April 1, 1985, p. 37.
Norman, James R., "Oscar Wyatt Aims at Sitting Duck," Business Week, March 18, 1985, pp. 33-34.
"U.S. Gas Pipelines Respond to FERC Order 636," Oil and Gas Journal, May 11, 1992, p. 38.
Source: International Directory of Company Histories, Vol. 17. St. James Press, 1997.
