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El Paso Fears Expansion to Ease Bondad Constraint May Be Doomed

El Paso Fears Expansion to Ease Bondad Constraint May Be Doomed

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

A little background: Bondad is a short 33.7-mile segment running from the Ignacio Plant in the southwestern corner of Colorado to a point near El Paso's Blanco Plant in northwestern New Mexico. Ignacio also is the southern terminus of Northwest Pipeline. The system has one station with gas turbines powering three compressors.

El Paso says the Bondad System has experienced significant curtailments in recent times, to the extent that it "has been forced to deny requests for transportation of 82,806,885 Mcf through the system during the period from June 1997 to April 1998." To accomplish the expansion, El Paso proposed to remove the three existing turbines and replace them with more powerful ones. No new pipe is involved, said Richard Baish, president of El Paso Natural Gas. The project would remove the basis differential between El Paso's Blanco and Bondad pools in San Juan Basin and allow Bondad gas to compete more effectively in the market, he said.

Following an open season held during August and September of 1997, El Paso contracted with three companies for firm expansion capacity. Enron Capital &amp Trade Resources took the lion's share of 100 MMcf/d in a 10-year agreement. Elm Ridge Resources got 10 MMcf/d, also in a 10-year agreement, while Conoco got the remaining 6.5 MMcf/d in an eight-year agreement.

El Paso's filing sought to have expansion capacity treated as a block separate from existing Bondad capacity. This was done to ensure that the new space was committed to the people who were paying for it and took nothing from other shippers, Baish told NGI. "That was very important to this deal," he added. Any time expansion capacity goes unused by the three contracted shippers, it will be up for grabs to anyone else.

But FERC, in its Aug. 31 order certifying the project, rejected the separate allocation of expansion capacity and told the pipeline to use rolled-in rates for the capacity instead of incremental ones. Based on those requirements, Baish said, whenever future Bondad nominations exceed capacity El Paso would have to allocate total (existing plus expansion) capacity on a pro rata basis among all firm shippers. That quite likely would result in the three expansion shippers being denied some of the extra space they had paid for. "That's not quite fair and also bad economics," Baish commented.

El Paso has a 10-year rate moratorium through the year 2005, he said. "The FERC certificate says to roll in expansion costs, but [because of the moratorium] we can't do it." In a Sept. 30 request for rehearing of FERC's order, the pipeline argued that existing system shippers would benefit from the expansion in the form of revenue credits and increased service reliability and flexibility. In addition, they can benefit from using the expansion capacity on a pro rata basis "to the extent it is not being utilized by the expansion shippers."

As the largest by far, Enron's contract is the key to whether the Bondad Expansion will become reality, Baish said. Enron has two provisions for canceling the contract: if its expectations are not met, 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," Baish said. "We asked for June 1 approval, but didn't get the certificate until September." And the onerous changes ordered by FERC are causing further delay, he said.

El Paso can't say for certain what Enron will do (it has until Dec. 1 to decide) "but our expectation right now is they will terminate the contract," according to Baish. El Paso already has spent $1.4 million in preparation work for the project and it would take another $2.4 million to complete, he said. The company can't throw good money after bad without knowing it will have an anchor shipper 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 wanted something for nothing."

Roger Tanner, Houston

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