El Paso Corp. said Friday it has signed a letter of intent to lease 750,000 Dth/d of capacity on the Enogex pipeline system in Oklahoma for its proposed Continental Connector project, which would extend from Wyoming to Mississippi. El Paso said the lease could cut a year off construction time for Continental Connector.

That kind of timing reduction and a commitment by Enogex to take 500,000 Dth/d of capacity on the proposed pipeline system might be enough to give El Paso an edge in the race to bring Rockies gas to eastern markets.

“Today’s announcement with Enogex is a major step forward for Continental Connector,” said El Paso’s Eastern Pipeline President, Stephen C. Beasley. “With this new letter of intent we gain the opportunity for immediate access to significant Mid-Continent supplies, leverage Enogex’s extensive infrastructure and reduce the construction time to be in service.”

Continental Connector would involve more than 1,000 miles of up to 42-inch diameter pipeline that would ship 1-2 Bcf/d of Rockies gas East by connecting six of El Paso’s pipeline systems, including in the West, Colorado Interstate Gas, Wyoming Interstate (WIC) and Cheyenne Plains, with points to the East on ANR Pipeline, Tennessee Gas Pipeline and Southern Natural Gas. Florida Gas Transmission also would have a connection to the project and multiple other third-party pipelines could be directly connected, including Natural Gas Pipeline Company, Texas Eastern, Texas Gas, Mississippi River Transmission, Columbia Gulf, Southern Star Central and Transco.

The project originally was expected to be in-service in November 2008, but with the help of the Enogex pipeline capacity, it could be in service in winter 2007-2008, said Beasley. By leasing space on Enogex, Continental Connector would eliminate the need to build about 180 miles of pipeline and it would reduce the time required to bring other pipeline segments into service.

The natural gas pipeline subsidiary of Oklahoma City-based OGE Energy Corp. signed a preliminary agreement to allow El Paso to lease up to 750,000 Dth/d of Enogex capacity with an option to expand up to 1.5 million Dth/d. The letter of intent also contemplates a commitment by Enogex to hold 500,000 Dth/d of capacity subscriptions for the project.

“With the Enogex development we now have a significant portion of that pathway that already has essentially been preconstructed,” Beasley said in an interview with NGI. “We’ve looked at building across there and doing it through strategic partnerships. One of the things that we want to try to do in any project is to mitigate to the extent we can the need for greenfield construction because we think that in the long run is what the market wants.”

Under the deal, Enogex would receive gas into its system at Custer, OK, and transport it under a long-term lease arrangement for redelivery in Bennington, OK. From there, gas would be transported on new pipeline facilities through the Perryville Hub in North Louisiana to a termination with Tennessee Gas and Southern Natural Gas at Pugh, MS.

“Our letter of intent with El Paso provides Enogex and Mid-Continent producers with greater options for the long term, notably the ability to move more natural gas to key markets, and provides the company with opportunities for growth,” said John McDougal, Enogex vice president. “Coupled with the new Bennington-to-Perryville segment, the existing pipeline assets of both El Paso and Enogex should make the Continental Connector project available to Rockies and Mid-Continent producers sooner than alternatives and in increments that match producers’ needs.”

El Paso’s ambitious project appeared to have been losing ground in recent weeks to its main competitor sponsored by Kinder Morgan and Sempra Energy. The $3 billion, 1,500-mile, 2 Bcf/d Kinder Morgan-Sempra project, which would extend from Colorado and Wyoming to Lebanon, OH, recently gained the backing of the Rockies largest gas producer, EnCana Corp.

EnCana committed its Entrega Pipeline project as the upstream portion of the Kinder Morgan-Sempra line (see Daily GPI, Aug. 10; Sept. 26; Oct. 19). Entrega already is under construction. The Wyoming Natural Gas Pipeline Authority (WNGPA) also made a financial commitment in October to support the Kinder-Sempra project (see Daily GPI, Oct. 7).

Kinder Morgan and Sempra said with the support of the WNGPA, its Wamsutter Hub-to-Cheyenne Hub portion of its project could be completed by year-end 2006. The Cheyenne-to-Midwest portion would be completed by year-end 2007. However, the more important eastern portion, providing direct access to markets in the Northeast, would not be in service until late 2008 or early 2009.

“These are really competitive projects,” noted Porter Bennett, president of Golden, CO-based consulting firm Bentek Energy. “If you look at the production trends right now, the Gulf is down and it was down even before the hurricanes. Louisiana was down before the hurricanes. The Texas stuff is up a little bit but not that much, and Oklahoma seems to be down… If you look at those trends, I think you need to get the western gas to the eastern markets. Or you use it to displace gas that’s going to the Midwest that would then go to the East.

“The issue right now in the West is that they are going to have more gas at the Cheyenne Hub than there is takeaway capacity,” he said. “It already is affecting basis and we’ll be back to a 2002 scenario in a year or so if the production trends keep going the way they are. You have to have another outlet going east.” Otherwise, Rockies gas prices will continue to be depressed relative to the rest of the market, and the eastern consuming region will not have the benefit of all that growing Rockies production.

Bennett said the best project in the end will be the one that has the greatest access to eastern markets. “I don’t know where the bottlenecks are on the systems going to the Northeast.” He said the project that bypasses the bottlenecks will be the project that makes the most sense to build. However, Bennett also said there may be enough gas supply eventually exiting the Rockies to make both projects necessary.

Beasley said he does not believe these major pipeline projects are “necessarily mutually exclusive.” He noted that Continental Connector would not be completely dependent on Rockies production. It also would transport gas from the Midcontinent and from North and East Texas.

However, he said Continental Connector does have several advantages over its competitors. For one thing, it is scaleable; it can grow to 1 Bcf/d and then 2 Bcf/d. It also would go through existing pipeline corridors. A large portion of it would be along the new Cheyenne Plains Pipeline from northern Colorado to Greensburg, KS. But perhaps the most significant benefit is that it would bring gas from liquid trading areas in the West to liquid trading areas in the East.

“We’re hitting a whole host of pipelines in the eastern United States. Essentially we’ll be able to provide supply diversity to virtually every pipeline that serves the eastern United States, the Midwest, the Great Lakes and the Southeast. We have liquidity on the market side that is in excess of 20 Bcf/d, which we think is a significant distinction between the [Kinder-Sempra and El Paso] projects,” said Beasley.

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