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EnCana, Entrega Sign MOUs to Support Rockies Express Gas Pipeline

In another strong endorsement, subsidiaries of EnCana Corp. and Entrega Gas Pipeline Inc. last week entered into a Memorandum of Understanding (MOU) to support Kinder Morgan Energy Partners LP (KMP) and Sempra Pipelines & Storage's 1,500 mile Rockies Express natural gas pipeline project. The pipeline, first proposed in August (see NGI, Aug. 22), would be the largest domestic gas pipe proposal in more than 20 years, delivering growing gas supplies from the Rocky Mountains to upper Midwest and eastern U.S. markets.

KMP and Sempra said they intend to file with the Federal Energy Regulatory Commission to begin the National Energy Policy Act prefiling process this month.

Under the MOU, subsidiary EnCana Marketing (USA) Inc. will negotiate for firm transportation capacity on the pipeline during an upcoming binding open season. The deal, subject to execution of definitive agreements and to approvals from the respective parties' boards of directors, is expected to make EnCana a significant anchor shipper on the new project.

"EnCana's commitment goes a long way toward making this project a reality," said Scott Parker, president of KMP's Natural Gas Pipelines Group. "Projects are proposed and open seasons are conducted frequently, but pipelines don't get built without real shipper support like we have received from EnCana, Sempra Energy and the Wyoming Natural Gas Pipeline Authority."

El Paso Corp. earlier this month proposed building the Continental Connector, which has a similar goal as the Rockies Express, but no announced firm commitments (see NGI, Oct. 10). El Paso, which is holding an open season through Nov. 4, is proposing more than 1,000 miles of up to 42-inch pipe to ship 1-2 Bcf/d of Rockies gas East by connecting six of its pipelines, including Colorado Interstate, WIC and Cheyenne Plains in the West, with points on ANR Pipeline, Tennessee Gas Pipeline, and Southern Natural Gas to the east.

However, a major difference between the Rockies Express and the Continental Connector systems are in the current proposed delivery points. The KMP-Sempra project would end in Ohio, which is closer to markets in the Northeast, while El Paso has proposed more southern end points. In any case, a cross country pipeline moving Rockies gas to the Northeast would offer attractive prices. The price difference on Monday between markets in the Rockies and Northeast was $3.67/MMBtu: (Opal Hub ($11.13/MMBtu) compared with Transco Zone 6 New York prices ( $14.70).

As designed, the preliminary route of the Rockies Express will originate at the Cheyenne Hub in northeastern Colorado and extend to eastern Ohio with an ultimate route to be selected based on shipper interest. The proposed 42-inch diameter pipeline will have capacity of up to 2 Bcf/d. Besides providing producers with needed takeaway capacity, the pipeline will feature multiple interconnects with other major pipeline systems and create flexibility for reaching other demand-anchored markets. Producers will also be able to more effectively address the price differential between Rocky Mountain basins and the demand centers where the pipeline will ultimately deliver the gas to.

Entrega recently began construction of a 330-mile 36-to-42-inch pipeline linking growing western Rockies production areas to the Cheyenne Hub in northeastern Colorado. Under the terms of the MOU and subject to final negotiations, Entrega, an EnCana affiliate, would be sold to the KMP-Sempra Energy project group. In combination, the Entrega pipeline and the KMP-Sempra pipeline project have the potential to create a major new gas transmission pipeline from the Rockies to eastern markets. Under a previous agreement, Entrega contracted KMP to operate the pipeline, and KMP will now market the available capacity on the project.

"The Rockies Express Pipeline should serve as a great benefit to both producers in the Rockies region and for U.S. consumers relying more and more on secure domestic energy sources," said George Liparidis, president of Sempra Pipelines & Storage. "We believe that other producers, local distribution companies and marketers will follow EnCana's lead in committing to development of infrastructure to transport reliable Rocky Mountain natural gas supplies to Midwest and East Coast markets."

Conditional commitments now account for about half of the pipeline's total capacity, and KMP said "strong interest" has been expressed for additional capacity from other parties. The state of Wyoming, under its Wyoming Natural Gas Pipeline Authority (WNGPA), earlier this month signed an MOU for an exclusive agreement to contract for up to 200 MMcf/d on the pipeline and extension of the project upstream to the Opal Hub in Wyoming (see NGI, Oct. 10). Also, five Midwest local distribution companies and one power generating company have entered into exclusivity agreements for the project, and a Sempra affiliate has agreed to bid for 200 MMcf/day of firm transportation capacity.

KMP and Sempra Pipelines & Storage are sharing responsibility for the Rockies Express development activities. KMP owns two-thirds of the equity in the proposed pipeline; Sempra owns one-third. Pending customer commitments and regulatory approval, the proposed pipeline is projected to be staged into service in late 2007 and continuing through 2009.

For information on the project, contact KMP's Jeff Rawls at (303) 914-4903 or Sempra's Ryan O'Neal at (619) 696-4585.

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