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Gulf Pipelines Scramble to Serve Burgeoning Production

Gulf Pipelines Scramble to Serve Burgeoning Production

Three weeks of severe weather in the Gulf of Mexico have left producers with their heads spinning and have sent Gulf production on a roller coaster ride, but producers should find some solace in the large number of pipeline companies scrambling to serve their growing transportation needs with new projects. In total, the new pipeline expansions announced last week could add more than 1 Bcf/d of additional pipeline access to markets for deep-water supplies.

The projects announced by Koch Gateway, Columbia Gulf, Tennessee Gas and a new agreement involving producers and Dauphin Island Gathering should alleviate existing pipeline constraints and provide more flexibility in reaching processing. They add to the 1.6 Bcf/d of new Gulf infrastructure that already has been brought on line this month.

On the heels of its 315 MMcf/d mainline expansion project, Mainline '99, which was filed with the Federal Energy Regulatory Commission in June and should be in service in December 1999, Columbia Gulf Transmission announced plans to build the Sea Star Pipeline system. Columbia currently is negotiating with potential partners to build the new system. It is designed to bring 660 MMcf/d of offshore production to processing facilities at Grand Isle, LA. The 56-mile project would include a 30-inch diameter mainline and two 24-inch diameter laterals. It would serve platforms in the South Pass and West Delta South Addition areas of the Outer Continental Shelf.

"These projects combine with Mainline '99 to provide a direct conduit to demand growth markets in the East, Northeast and Midwest for Gulf of Mexico gas supplies, including those produced in deep water," said Columbia Gulf President Terrance L. McGill.

An open season for capacity on Sea Star started last week and will close Sept. 29. Sea Star will offer shippers both firm transportation service and flex-firm service, as well as interruptible transportation. To be eligible for flex-firm, shippers must commit to transport through Sea Star at least 80 Bcf of proven recoverable reserves at each requested receipt point. Sea Star firm transportation will have a demand charge of $3.861/Dth, and a combined volumetric rate of $0.1269/Dth, or the maximum demand and commodity rates approved by FERC, whichever is lower. Shippers must agree to a minimum term of 10 years, with service beginning no later than Dec. 1, 1999.

To provide new capacity downstream of Sea Star, Columbia announced last week it would add 600 MMcf/d though looping and compression to its East Lateral, which extends from Grand Isle to Centerville, LA. However, it faces stiff competition with another expansion also announced last week by Koch Gateway.

Initially, Koch plans to build a five-mile supply lateral to connect its mainline to Grand Isle. That first phase will create 300 MMcf/d of downstream capacity at a cost of only $7 million, which a Koch spokesman said would enable the project to win hands down in a competition with Columbia.

"It's very low in capital expenditures. We can put it in place very quickly. We don't need a certificate for the first phase. And we don't have to have 10-year commitments because we're willing to take the risk," said Koch Gateway Senior Vice President Renato Pereira. "We said we'll take minimum three-year terms. If the producers or shippers don't want to commit immediately, we'll still build the line. We would just try to get our business done on a day-to-day basis."

Koch said the costs will fall under its blanket certificate limits and will cause no rate impact. As a result, Koch can move forward without filing an application with FERC. Phase II, which is contingent on demand, would require new pipeline looping and compression, adding another 300 MMcf/d. Capacity on these projects is expected to be available in the fourth quarter of 1999.

DIGP Inks Deal with Producers

Meanwhile farther east in the Viosca Knoll area of the Gulf, Dauphin Island Gathering Partners (DIGP) added some long-term security to its Phase II expansion, which is slated to be in service in October adding 1.1 Bcf/d of capacity. DIGP signed an unique supply and gathering agreement with producers Elf Exploration Inc., Coastal Oil and Gas, Nippon Oil Exploration U.S.A. and Pogo Producing, who are partners in the deep-water Virgo prospect.

The deal commits the producers' gas supplies from a four-block unit around Viosca Knoll Block 823 to the DIGP system. In return DIGP will provide deep-water wellhead production handling services as well as downstream gathering and transmission services. DIGP will build a 17-mile, large-diameter gathering lateral to connect the Virgo platform to the existing DIGP system in the vicinity of Main Pass-East Addition Block 225. In addition, DIGP will have rights to the Virgo platform facilities, which will serve as a strategic hub to attach new gas supplies from other deep-water developments.

The Virgo producers have commissioned construction of a platform that will be set in 1,130 feet of water in Viosca Knoll Block 823. Construction of the platform is underway, and pipeline construction is planned for mid-1999 for an anticipated production startup of late 1999.

DIGP is a 260-mile pipeline system designed to gather natural gas supplies from the prolific eastern Gulf. It is the only system in the region that provides outlets to both Venice, LA, and Coden, AL. DIGP placed Phase I of its system expansion into service in April, making it the first eastern Gulf of Mexico pipeline to transport deep-water gas production to onshore facilities in Alabama. DIGP is a partnership of subsidiaries of Duke Energy (37.3%), MCN Energy (34.5%), Coastal (13.6%), Consolidated Natural Gas (13.6%) and Titan Offshore (1%).

Tennessee Adds Mississippi Canyon Connection

Tennessee Gas Pipeline and Mississippi Canyon Gas Pipeline said last week they will build a 400 MMcf/d interconnect in Venice, LA. The project will link deep-water production areas behind Mississippi Canyon Gathering (a unit of Tejas Offshore) with market areas served by Tennessee. Tennessee plans to accept nominations at this new point starting with April 1999 flows. Tennessee is conducting a binding open season that ends Sept. 25. Successful bidders in the open season will be announced on September 28, 1998.

"Construction of this new interconnect, paired with the just completed expansion of our South Pass system, demonstrates our continuing commitment to addressing the needs of Gulf of Mexico producers," said Tennessee Gas President John Somerhalder II. Tennessee added 200 MMcf/d of new capacity to the severely constrained South Pass system in August.

Destin, Mobile Bay, Tennessee Additions

Other recent capacity additions in the Gulf include Destin Pipeline, which put 1 Bcf/d of capacity into service Sept. 1 from Main Pass 260 to Pascagoula, MS, where it connects with Florida Gas and Koch Gateway. The pipeline expects to complete its northern portion, from Pascagoula to connections with Transco, Southern Natural and Tennessee in Clark County, MS, by mid-November. A Destin spokesman said the pipeline expects to be flowing 300 MMcf/d by the end of the year, 600 MMcf/d by the 3Q99 and the total 1 Bcf/d in 2000 or 2001. Current throughout is 100 MMcf/d.

Transcontinental Gas Pipe Line completed Phase I of its Mobile Bay lateral expansion this month, bringing on line 350 MMcf/d of capacity. Phase II is expected to increase capacity by 136 MMcf/d in November.

Rocco Canonica

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