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Kinder Morgan Seeing Increased Producer Support for Infrastructure

Producer shippers are increasingly stepping up commitments to Kinder Morgan Energy Partners' (KMP) new natural gas pipeline projects out of the Rocky Mountain area, and as the pipelines move closer to the major markets, there is more interest among local distribution companies (LDC) in taking capacity, generating a producer-push/market-pull effect to get new infrastructure in place.

"Producers are interested in getting a better price for their gas and LDCs are looking for new infrastructure to satisfy their existing and future needs while providing access to long-lived Rocky Mountain supply," John Eagleton, KMP West Region Gas Pipelines vice president of business development, told NGI recently. With the REX-West segment of the Rockies Express Pipeline (REX) just about completed into Missouri and the link to Ohio progressing through FERC, Eagleton is talking to prospective shippers about an extension going to Linden, NJ.

Also on the table is a proposed pipeline from the Rockies to a connection approximately 240 miles west of Chicago with a new line to be built by Kinder Morgan's Natural Gas Pipeline Company of America (NGPL), which would provide Rocky Mountain production with direct access to Chicago markets and Vector Pipeline, which can transport the gas farther east to the Dawn Hub (see NGI, Jan. 21).

The new projects are evolving as talks are progressing, Eagleton said. "We talk to the prospective shippers to come up with the best fit for what the market wants. There is significant involvement with the shippers with a lot of time spent on what their needs are and how those needs might be met." Eagleton pointed to a report by the Wyoming Pipeline Authority (WPA) that showed an increase in committed capacity from producers for transportation out of the Rocky Mountain basin. Before REX, of the 20 largest shippers out of Wyoming, producers and their affiliates had about 40% of the capacity, with marketers taking 20% and utility, electric power and industrial customers signing on for 40%. Recognizing shipper commitments to REX, the producers now have 50% of pipeline capacity, marketers 19% and the consumers 30%.

"Historically, building pipelines was kind of like building a highway. Nobody wants to do it until there's a lot of congestion and then all of a sudden everyone wishes it had been built earlier. Today, shippers are not only thinking about the timing of developing production but also the timing related to pipelines so that the two are coordinated and they are positioned to sell the gas as it is developed." Eagleton credits the increasing involvement of shippers in the development of the pipeline projects for the increased support. Also, he noted that the WPA has been effectively prodding the industry to develop state resources and move them to market, and its efforts are continuing (see www.wyopipeline.com).

LDCs also are more interested in taking capacity, and KMP is actively in conversations with several of them. The LDCs, however, still must deal with their state regulators, who may have problems with capacity contracts going too far upstream of the citygates. "During our discussions, LDCs have indicated that the public utility commissions are pretty comfortable allowing them to make transportation commitments from liquid points that are proximate to the market, but as you move farther upstream approval becomes more challenging," Eagleton said. This is where the producer-push/market-pull comes in, with producers and marketers pushing the gas out of the production area on their own capacity to a point where the customers can take over. The old battle over whether the producing or consuming ends should take on the infrastructure risk appears to be settling somewhere in the middle.

Eagleton will be making a presentation at GasMart 2008 coming up in Chicago May 20-22. "By that time we will know more about the status and timing of the REX pipeline and there should be some further developments on the proposed Chicago line and the Northeast extension project to New Jersey," he said.

In the meantime other companies have proposed several large pipelines to take gas out of the Rockies. Most recently, Alliance Pipeline and Questar proposed a new line to Emerson, MB, where gas could hop onto established pipes into the Midwest (see NGI, March 31).

Questioned if there is enough gas for all of those pipes, Eagleton said the short answer is "probably not if all of the proposed pipelines are built at the same time. Everyone is proposing these projects basically going into service on the same timeline, and if you add up the capacity of all of those pipes, in all likelihood, it exceeds production forecasts in the near term. Now, over the longer term, 10-15 years, will there be multiple projects out of the Rockies? Probably. Overall production out of the Rocky Mountain basin will continue to grow and represent a larger part of the overall supply picture for the Lower 48. It's just that right now a number of pipelines want to be the one to build the next big project out of the Rockies."

Eagleton touted the proposed Kinder Morgan/NGPL pipeline to Chicago as offering one-stop shopping, with one nomination providing delivery all the way from the Opal and Meeker hubs in the West to delivery points on NGPL. Also the line, including the NGPL extension, will be a new, more efficient high-pressure pipeline as opposed to projects that connect with older lines and have to compete with established shippers for capacity.

Speakers at GasMart 2008 include principals in the natural gas production, transportation and marketing business. Besides REX, sponsors who will make presentations and have exhibits in the market network center include BP plc, Shell Energy North America, ConocoPhillips, TransCanada Corp., Nexen Inc., EnergyUSA, Integrys, the Process Gas Consumers, Bentek Energy LLC, IntercontinentalExchange, the New York Mercantile Exchange and North American Energy Clearing and Credit. To see a list of attendees signed up so far, go to Attendees.

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