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EIA: New LNG Terminals Could Lead to Record Pipeline Additions in 2006-07

Expansion of the U.S. natural gas pipeline grid slowed substantially in 2004 with only 7.7 Bcf/d of capacity added, but the current inventory of proposed projects indicates that major growth will take place between 2005 and 2007, with potentially as much as 44.4 Bcf/d of new capacity added to the national network, the Energy Information Administration (EIA) said Tuesday in a new report.

EIA said there were 41 gas pipeline projects completed last year, down about 20% from 2003. There were 16 expansions, 16 extensions or laterals, eight new pipelines and one oil pipeline conversion. The amount of incremental capacity added, however, was the least since 1999 when only 6.5 Bcf/d was added. About 10.4 Bcf/d was added in 2003. Expenditures also were down to less than $2.2 billion in 2004, well below the $3.6 billion spent in 2003 and the $4.4 billion in 2002.

Six new pipelines were built in the Gulf of Mexico with 1.8 Bcf/d of additional capacity. The new offshore pipelines were built to support several large new deepwater fields that came online. The offshore pipelines accounted for 66% of the total new capacity added in the Southwest region and 23% of the total new capacity, EIA said in its report titled "Changes in U.S. Natural Gas Transportation Infrastructure in 2004."

Two of the major onshore pipeline projects built last year were El Paso's Cheyenne Plains, a 560 MMcf/d system from the Cheyenne Hub in northern Colorado to Greensburg, KS, and the 320 MMcf/d expansion of El Paso Natural Gas's southern leg. Several new intrastate pipelines also were built, including those to transport growing production from East Texas basins. Energy Transfer's 500 MMcf/d Bossier Pipeline and Kinder Morgan's 170 MMcf/d Rancho Pipeline both were among the new East Texas pipelines.

However, only five out of the 41 pipeline projects built last year crossed regional boundaries, the smallest number in five years, according to the agency. Additions to regional capacity totaled 768 MMcf/d, a 73% drop from 2003. Much of interregional growth was concentrated on transporting gas to or from the Southwest. The only non-Southwest increases to capacity were Transcontinental Gas Pipe Line's Momentum project in the Southeast and the 230 MMcf/d Eastchester project of Iroquois Gas Transmission into Long Island from Connecticut.

There also was a drop in construction of import-export pipeline projects. Only one import project was built in 2004 and only one small export project to Mexico. "While above its 2003 level, the 2004 import capacity addition was far below that of 2000," EIA said. "It was also the third lowest level since 1998."

EIA said it expects the pipeline construction lull in 2004 will be a "temporary low in the development cycle for the natural gas pipeline grid, which has grown significantly over the past decade.

"Beyond 2005...proposed capacity additions in 2006-07 could result in record additions in those years as numerous projects are planned in conjunction with proposed U.S. liquefied natural gas (LNG) facilities." According to EIA data, as much as 15 Bcf/d of pipeline capacity could be added in 2006 and 21 Bcf/d in 2007.

For the period 2005 through 2007 six new pipelines are planned in association with proposed LNG import terminals along the Gulf Coast. "Since most of these LNG import facilities have been designed to regasify volumes on a large scale, 1,000 MMcf/d to 2,500 MMcf/d or greater, the pipeline laterals built to transport the output to interconnections with the existing pipeline grid are also designed for similar load capacities. Indeed the six new and two expansions laterals that have been proposed for completion through 2007 total 10.3 Bcf/d."

EIA said the other major portion of new pipeline capacity additions through 2007 will occur in the Rockies to support production growth in Uinta and Piceance basins in Colorado and eastern Utah as well as Wyoming's producing fields. More than 6.7 Bcf/d of new pipeline construction is expected to serve these supply areas, providing capacity to western and midwestern markets.

"Overall, 107 pipeline projects have been proposed for development between 2005 and 2007 (as of May 2005), accounting for more than 44 Bcf/d of potential capacity and about 5,000 miles of installed pipeline," the agency said. The bulk of the capacity additions will support LNG terminal construction. However, EIA expressed some concern that there have been few pipeline expansions proposed downstream of LNG terminal pipeline laterals, setting the stage for potential bottlenecks.

"To date, only three interstate pipeline companies have announced plans to expand a part of their system to accommodate a portion of this new supply source," EIA said. "One reason for this hesitation may be that unused capacity may exist, or is expected to become available, on those pipeline routes." As an example of that, EIA cited Excelerate's Gulf Gateways Energy Bridge LNG port, which utilizes primarily the Sea Robin pipeline system to transport its gas onshore. Sea Robin had an average annual load factor of about 30% in 2003 and had enough unused capacity to handle the additional load without an expansion.

Nevertheless, the agency said that it is "very unlikely that all the incremental pipeline capacity needed by these proposed LNG facilities can be accommodated on the existing pipeline infrastructure. Obviously, additional expansions of the mainline natural gas transportation network also will be needed." EIA said what is mostly likely to happen is that as LNG projects gain regulatory approvals pipelines will begin holding open seasons for capacity expansions. The result could be an even greater amount of pipeline capacity added than the record level that is currently proposed. For more from the report go to http://www.eia.doe.gov/.

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