Colorado's First Merchant Storage Field Moves Toward Construction
A new merchant natural gas storage project in a depleted gas
field about 35 miles northeast of Denver has obtained all of its
state approvals, and its backers anticipate construction starting
early next year with initial start-up to begin in the fourth
quarter of next year.
The Totem Gas Storage project initially will have about 9 Bcf
working capacity in the "J" sand gas reservoir in Adams County.
Estimated costs range from $30 to $45 million, depending on whether
a 21-mile, 16-inch diameter pipeline is required to run northwest
to a Public Service of Colorado transmission pipeline, according to
the project's sponsors.
Backers are looking for customers right now, and they have no
signed contracts yet, according to Mike Wright, one of the
principals in the project which is being led by Dallas-based Brant
Energy. Final tariffs for the proposed facility were filed last
week with Colorado regulators.
The Totem project is located on part of a depleted gas
production field and has two major transmission pipelines
traversing the general area, but by far the closest is Colorado
Interstate Gas Pipeline (CIG), which has the option before
construction to take a 37% interest in the project. CIG opposed the
storage project, and the Totem backers have had to reach a
state-approved settlement with the pipeline. CIG's pipeline runs
immediately adjacent to the proposed storage site on its northwest
side, and the proposed 21-mile pipeline would first cross CIG's
line before heading another 20 miles northwest.
"I don't know whether they [CIG] will exercise their option or
not," said Wright. "They'll have to pay their proportional share of
all the costs. I don't know what will happen because they are
supposed to be merged with El Paso." CIG is part of Coastal Corp.,
which is merging with El Paso Energy.
"We felt like they could have tied us up and fought us. In fact,
when the state land board issued us a land lease, CIG filed in
court to have that overturned. I could see we were going have lot
of problems. So we're glad we were able to work out a deal with
One of the other principals in the Totem deal speculated that El
Paso will want the interest in the storage field to complement the
added storage it is getting from ANR, which this source thinks will
make El Paso one of the nation's largest gas storage operators.
Besides Brant Energy, the other partners include Thermo Ecotek
Corp. of Waltham, MA; Renegade Oil & Gas of Aurora, CO; which
operates of the depleted gas field; and Fairchild & Wells of
Houston, which will be the reservoir engineers.
With the advent of about 2,000 MW of new gas-fired electricity
generation scheduled to come online in the area, the backers are
betting a storage field with maximum delivery capacity and
market-based rates will draw customers from among marketers,
utilities, energy service providers and large industrial customers
Totem Storage has obtained its okay from Colorado regulators for
market-based rates with a cap. Wright said the cap would never be
reached because it is above what the storage market would bear. It
is essentially $1.11/Mcf on an annual basis, prorated monthly. The
market-based rates would be in the range of 80 to 90 cents/Mcf,
with a 2 cents/Mcf fee for cycling, Wright said. Some customers may
provide their own cushion gas, which would lower their charges.
"This gave Colorado regulators a lot of heartburn because they
have never done anything other than cost-based rates," Wright said.
"After lengthy negotiation with the staff, we got the rates we
wanted along with a cap. We got the cap set high enough that you
couldn't sell storage at that level.
"We feel pretty comfortable we are going to market our products
(including standard firm storage; and supplemental short-term, high
deliverability, such as balancing, supply security, intra-week
balancing, intra-day swing services and parking."
One of Wright's partners, Geoff Mitchell, a long-time developer
of independent gas storage projects throughout the U.S. and Canada,
said Denver is a "hot area" for projects because of the
geographical restrictions on getting power in and out of the Rocky
"They are very constrained against getting much power from
outside," he said, noting that the long list of proposed new power
projects is attempting to address continuing high electric growth.
The area also is unique in having two peak power seasons --- one
in the winter and one in the summer, according to Wright. He is
hopeful the proposed Totem project can fully cycle twice each year,
as opposed to the traditional once-a-year, winter/spring withdrawal
and summer/early fall injection.
Richard Nemec, Los Angeles