El Paso’s Bondad System in the San Juan Basin is constrained tothe point that some gas traders mockingly refer to it as “Bondage.”Anything to ease the constriction ought to be welcomed with openarms by those who deal with that point, right? Yet the pipeline’sBondad Expansion project, aimed at adding 116.5 MMcf/d to thesystem’s current capacity of about 567.7 MMcf/d, is in danger offailing because FERC feels the three shippers paying all of theproject’s costs should share their expansion space withnonparticipants.

A little background: Bondad is a short 33.7-mile segment runningfrom the Ignacio Plant in the southwestern corner of Colorado to apoint near El Paso’s Blanco Plant in northwestern New Mexico.Ignacio also is the southern terminus of Northwest Pipeline. Thesystem has one station with gas turbines powering threecompressors.

El Paso says the Bondad System has experienced significantcurtailments in recent times, to the extent that it “has beenforced to deny requests for transportation of 82,806,885 Mcfthrough the system during the period from June 1997 to April 1998.”To accomplish the expansion, El Paso proposed to remove the threeexisting turbines and replace them with more powerful ones. No newpipe is involved, said Richard Baish, president of El Paso NaturalGas. The project would remove the basis differential between ElPaso’s Blanco and Bondad pools in San Juan Basin and allow Bondadgas to compete more effectively in the market, he said.

Following an open season held during August and September of1997, El Paso contracted with three companies for firm expansioncapacity. Enron Capital &amp Trade Resources took the lion’s shareof 100 MMcf/d in a 10-year agreement. Elm Ridge Resources got 10MMcf/d, also in a 10-year agreement, while Conoco got the remaining6.5 MMcf/d in an eight-year agreement.

El Paso’s filing sought to have expansion capacity treated as ablock separate from existing Bondad capacity. This was done toensure that the new space was committed to the people who werepaying for it and took nothing from other shippers, Baish told NGI.”That was very important to this deal,” he added. Any timeexpansion capacity goes unused by the three contracted shippers, itwill be up for grabs to anyone else.

But FERC, in its Aug. 31 order certifying the project, rejectedthe separate allocation of expansion capacity and told the pipelineto use rolled-in rates for the capacity instead of incrementalones. Based on those requirements, Baish said, whenever futureBondad nominations exceed capacity El Paso would have to allocatetotal (existing plus expansion) capacity on a pro rata basis amongall firm shippers. That quite likely would result in the threeexpansion shippers being denied some of the extra space they hadpaid for. “That’s not quite fair and also bad economics,” Baishcommented.

El Paso has a 10-year rate moratorium through the year 2005, hesaid. “The FERC certificate says to roll in expansion costs, but[because of the moratorium] we can’t do it.” In a Sept. 30 requestfor rehearing of FERC’s order, the pipeline argued that existingsystem shippers would benefit from the expansion in the form ofrevenue credits and increased service reliability and flexibility.In addition, they can benefit from using the expansion capacity ona pro rata basis “to the extent it is not being utilized by theexpansion shippers.”

As the largest by far, Enron’s contract is the key to whetherthe Bondad Expansion will become reality, Baish said. Enron has twoprovisions for canceling the contract: if its expectations are notmet, and/or if the expansion is not in service by the end of 1998.”That [end-of-year] deadline cannot be met at this point,” Baishsaid. “We asked for June 1 approval, but didn’t get the certificateuntil September.” And the onerous changes ordered by FERC arecausing further delay, he said.

El Paso can’t say for certain what Enron will do (it has untilDec. 1 to decide) “but our expectation right now is they willterminate the contract,” according to Baish. El Paso already hasspent $1.4 million in preparation work for the project and it wouldtake another $2.4 million to complete, he said. The company can’tthrow good money after bad without knowing it will have an anchorshipper as part of the expansion, Baish said.

“I don’t know if we failed to explain the project properly,”Baish concluded. “FERC went along with other shippers who wantedsomething for nothing.”

Roger Tanner, Houston

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.