 Federal regulators have given the thumbs up to one of the largest natural gas pipeline projects in recent years. The so-called Rockies Express-West line will carry gas supplies from the Rockies through the Midwest and into the eastern United States. The Federal Energy Regulatory Commission (FERC) says that the greenfield project will help offset production declines in other areas of the country. The time appears to be right to build pipelines and to move that gas from the Rockies to the Northeast. Natural gas is a lot cheaper in the Rockies than anywhere else. And since the Northeast needs new supply and more dependable storage, the gas companies are providing a valuable market need by building the pipeline."The sponsor companies appreciate the timely manner in which the FERC completed its environmental review and subsequently authorized the certificate for Rockies Express-West," says Scott Parker, president of Kinder Morgan Energy Partners' Natural Gas Pipelines group. "We look forward to completing another significant segment of the Rockies Express project, which will transport natural gas from the prolific Rocky Mountain supply basins to markets in the Midwest (and beyond.)"
Rockies Express Pipeline LLC is a $4.4 billion joint venture of Kinder Morgan Energy Partners, Sempra Pipelines and Storage and ConocoPhillips, and is one of the largest natural gas pipelines to be constructed in North America. When completed, after receipt of all necessary approvals, the 1,678-mile pipeline will have a capacity of approximately 1.8 billion cubic feet per day.
Pipeline maps indicate that natural gas comes out of the Rockies and into the Midwest. Gas also comes out of the Gulf Coast and into the Midwest and Northeast. But natural gas doesn't move from the Rockies to the east. Simply put, the capital and endurance to do so have been overbearing -- until now. The Northeast needs new supply and dependable storage and companies such as ConocoPhillips, Kinder Morgan and Sempra have the capital behind them to push for these projects.
The United States hungers for natural gas but without the construction of new pipelines to transport the fuel source, supplies won't grow and prices will have to rise. Still, if the electric utility industry would commit to build generation and to invest in gas transportation contracts, more pipeline companies would take the risks and construct the necessary infrastructure.
Clearly, strong natural gas prices and an increase in the demand for that fuel source by power plants support the construction of new pipelines. The paradox is that company officials won't authorize projects without firm contracts while those who would utilize the services won't sign on until deals are permitted. The dilemma is perpetuated because of regulatory and environmental challenges, as well as the fact that lenders are being tighter-fisted and companies are cutting back expenditures.
Tough Battles Ahead
To be sure, the new project may have been given regulatory approval but court battles lie ahead. Opponents are protesting any further dependence on fossil fuels that have a finite future such as natural gas, with an estimated 60 years of reserves. The current high prices provide the incentive to develop renewable resources like wind and solar, they say.
Meantime, some projects have not done as well as hoped. Take the Longhorn Pipeline that begins in Texas and stretches to starved areas in the Southwest. Developers have gone ahead with the project without getting firm commitments up front, which has so far not been a fruitful experience.
Without a doubt, new gas supplies and the infrastructure are needed. If stakeholders can agree and the challenges posed are met, then energy companies will invest in new pipelines and win the long-term contracts necessary to win financing.
A study by the INGAA Foundation says that natural gas prices would rise from the base case price of $5.65 per MMBtu between 2005 and 2020 to $6.43 per MMBtu if construction projects were delayed by two or more years. This would be because of increased bottlenecks, it says. It furthermore says that U.S. industry would suffer from higher prices and that job losses would occur.
To meet a growth demand of 2 percent per year until 2020, the foundation says that roughly $61 billion of investment in natural gas pipelines and storage facilities is necessary, both in the United States and Canada. About $19 billion of that would be needed just to replace aging pipelines. The report goes on to say that the industry must build more than 45,000 miles of pipelines in North America, as well as at least 10 new liquefied natural gas (LNG) terminals.
The foundation and developers alike say that much of the growth in natural gas markets could come from areas now off limits to federal production. While Congress just recently authorized greater drilling rights in the Gulf of Mexico, it is unclear if greater access will be granted in other forbidden areas of the country. In any event, the Rockies Express-West will deliver reliable and affordable supplies to others around the country, says FERC Chairman Joseph T. Kelliher.
"The Rocky Mountain region is a major supply source for the Lower 48 states and its production continues to grow," he adds. "In addition, the amount of proven reserves, critical for increased production, is growing as well."
Despite the need for new supplies and the accompanying infrastructure, natural gas development is still a risky proposition. Regulators understand the situation and as such have worked to streamline the permitting process. That's worked to encourage the Big Three piecing together the Rockies Express-West, which if successful, would likely encourage others to step up.
Ken Silverstein EnergyBiz Insider Editor-in-Chief
April 30, 2007 |
