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Kinder Morgan, Sempra to Develop Rockies-to-East Coast Pipeline

Kinder Morgan Energy Partners LP and Sempra Pipelines & Storage last Wednesday announced they have entered into a memorandum of understanding (MOU) to develop a 1,500-mile interstate natural gas pipeline that would link producing areas in the prolific Rocky Mountain region to market areas in the upper Midwest and eastern United States.

The 42-inch diameter pipeline project would have the capacity to deliver up to 2 Bcf/d and would cost approximately $3 billion, according to Houston-based Kinder Morgan. The preliminary route of the 1,500-mile line would originate at the Wamsutter Hub in Wyoming and extend to eastern Ohio with an ultimate route (possibly an extension to the eastern hub at Leidy, PA) to be selected based on shipper interest. The line would feature multiple interconnects with other major pipeline systems, potentially as many as 40.

Under the terms of the MOU, Kinder Morgan and Sempra Pipelines will share responsibility for the development of the pipeline. Additionally, Sempra has agreed to bid for 200 MMcf/d of firm capacity on the line during an upcoming open season that it will use to serve distribution utilities on the East Coast.

Kinder Morgan said it would own two-thirds of the equity in the proposed pipeline, with Sempra Pipelines owning the remaining one-third interest. Pending the feasibility of the project, shipper commitments and regulatory approval, the pipeline project will be staged into service beginning in late 2008 and continuing through 2009, the energy company noted.

"If built, the pipeline would maximize the value of growing Rockies' production by creating unprecedented access by one pipeline to multiple markets and storage, while providing markets in the upper Midwest and eastern U.S. with direct access to reliable, long-lived domestic natural gas supplies," said Scott Parker, president of Kinder Morgan's Natural Gas Pipelines Group.

Parker unveiled details of the Rockies-to-East Coast pipeline project earlier this month at the Colorado Oil and Gas Association (COGA) annual meeting in Denver, CO (see NGI, Aug. 8). He believes the project is needed in light of the almost-full existing pipe capacity out of the Rockies and the growing basis differential that once again faces Rockies' gas.

Kinder Morgan's analysis shows the Gulf Coast and West Coast are more likely to receive new liquefied natural gas supplies than the East Coast, where opposition to terminals is strong. And a long line to the East would avoid the rate stacking inherent in using multiple connecting pipelines.

With the proposed pipeline, Kinder Morgan said producers would be able to more effectively address the price differential between Rocky Mountain basins and other parts of the country. Using the new pipe producers would add 90 cents/MMBtu to their future netbacks, Kinder Morgan estimates, while eastern and midwestern LDCs would knock 25 cents/MMBtu off their prices.

"Sempra has evaluated multiple alternatives to move gas from the Rockies and believes this project represents the best long-term solution for the U.S. gas market," noted George Liparidis, president of Sempra Pipelines & Storage.

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