INGAA: Obstacles Hinder Pipeline Expansion
Firing a shot across the bow of local distribution companies
(LDCs), INGAA Chairman Stanley C. Horton, CEO of Enron Gas
Transportation Services Co., said last week the LDCs are standing
in the way of desperately needed interstate pipeline capacity.
There are significant problems looming on the horizon for the
pipeline industry as consumer concerns increase in tandem with gas
prices, Horton noted. Two regions need immediate pipeline capacity
help: the Pacific and the Northeast. But several obstacles stand in
the way, not the least of which is LDC rivalry.
"In both regions, pipelines have run into continued opposition
from local distribution companies who fear that adding more
pipelines will be overbuilding pipeline capacity, thereby
cheapening pipeline capacity. We don't think that pipelines ought
to be overbuilt for economic reasons and environmental reasons,"
said Horton, speaking last week at INGAA's offices in Washington,
D.C. "We don't want pipelines that are half full."
He said as recently as last fall that Transwestern ran into
stiff opposition from California's LDCs over a proposed expansion
of 140 MMcf/d, about 10%. The utilities claimed additional pipeline
capacity to California was not needed. "I'm sorry, but additional
pipeline capacity was needed and is needed in California."
Horton said Transwestern plans to try again soon because its
system has been running full since the El Paso explosion last
August. "I would expect that we will continue to run full for many
months to come. We are now sold out of firm capacity through 2004
or 2005..... We are contemplating an expansion of our system and
have run an open season." He said meetings on the project would be
held later this week. "I can tell you it's not going to be below
PG&E Gas Transmission-Northwest also is planning to expand
by 200 MMcf/d and Kern River has a project on file at FERC. In
addition, FERC has asked El Paso to use the All America Pipeline to
create new gas transportation capacity to California.
Nearly every pipeline into the state is trying something to ease
supply constraints that apparently are behind the price increases
there. But those plans will do nothing unless local distributors
lift their opposition and do a little expanding of their own, said
Southern California Gas Co. should take some of the blame for
the recent spot price spikes at the Southern California border, he
said. Spot prices there reached $69/MMBtu in December, which was
the highest wholesale price ever recorded since wellhead decontrol.
Earlier this month, prices shot back up above $40/MMBtu.
"You've got to expand the intrastate systems in California.
Takeaway capacity is a constraint. Just creating a bigger straw
going into California is not going to resolve the problem. You have
to look at the intrastate lines and the distribution system,"
There is a "tremendous amount" of interstate pipeline capacity
going into California that "does not match up" with smaller
intrastate lines. Horton said the LDCs recently have shown some
willingness to consider solutions. "We have engaged in some
conversations with SoCal Gas and hopefully it will lead to movement
on their side. I certainly think they have a reason to want to do
something about this."
Horton refuted claims that marketing affiliate abuse was partly
behind spot price increases at the California border. "The only
area where [Enron] could [do that] would be on Transwestern
Pipeline; that's the only physical asset we have that can move gas
into California. The fact that they have not subscribed any new
capacity on our system since the whole California thing blew up
[argues against that]. I think the last time I saw they had less
than 10-15 MMcf/d of total capacity on the Transwestern system and
those were at rates that we offer everyone else." He also disputed
any suggestions that other companies were engaging in marketing
affiliate abuse, noting that FERC regulations and oversight have
been more than adequate to prevent such abuse.
Demand growth, heavy reliance on gas-fired generation in the
state and intrastate and interstate pipeline constraints were all
contributing factors to the recent price run-up out West. The
pipeline industry is working hard to cover its part of the bargain,
said Horton. California isn't the only place in need of capacity.
Horton expects $2.3 billion to $2.5 billion per year will be spent
on interstate pipeline capacity expansions across the country over
the next decade.
LDC opposition is one thing standing in the way of future
pipeline growth. Another is proposed pipeline safety measures, he
said. The pipeline safety bill that recently passed the Senate
could do significant financial damage to pipelines and distributors
and also could harm the market, Horton indicated, by taking
pipelines out of service for testing every five years.
"We are concerned about potential reliability and loss of
capacity problems that potentially could be caused by the pipeline
safety legislation that was passed by the Senate. It contains some
fairly restrictive language calling for five-year inspection
timetables. Our problem is that as you inspect these lines through
pigging or hydrostatic testing, for some period of time those lines
will be out of service.
"We think there are some places where maybe you ought to test
with more frequency and other places where you ought to test a lot
less frequently," said Horton. "But if you have a law that says you
have to test every five years, I'm not sure for the money that you
spent, it is going to provide a corresponding increase in safety."
What INGAA would like is not something that mandates testing on
a certain time interval but rather a testing program "built upon
knowledge," he said. "We have a risk assessment program that we use
at Enron and that I imagine most other pipelines use also. In this
risk assessment model there are hundreds of data elements that go
into this model that tells us where the greatest chance that you
might have a pipeline failure are...based upon history, soil
conditions, that kind of pipe, etc. We think that's a much better
program than going around every five years and dig and hydrostatic
test every piece of pipe you have."
INGAA's Action Plan
Horton said in addition to influencing the shape of the new
pipeline safety laws, INGAA's agenda this year will include a
number of other activities:
- participate in the technical conference on marketing
affiliates and the two-track regulatory system at FERC;
- promote the settlement of Order 637 proceedings to "prevent a
one-size-fits-all approach and ensure adoption of compliance
initiatives that recognize the physical configuration and the
limitation of each pipeline;
- promote the need for flexible service to electric generators;
- continue to ensure that the pipeline returns given by FERC are
commensurate returns to attract capital under reasonable conditions
so $2.5 billion can be spent annually on increasing pipeline
- support a program that promotes greater public
knowledge of the pipelines' safety record and discourage
ineffective regulations and legislation;
- pursue a gas pipeline safety integrity rulemaking at the
Office of Pipeline Safety (OPS) that is rational, cost effective
- provide input in the OPS's proposed community outreach rule to
better assure the public that gas pipelines are safe;
- use the Internet better to inform the public on
- encourage legislators to include in any national
energy policy provisions that address delays in permitting and
construction of new pipelines, promote the need for a TransAlaska
Natural Gas Pipeline, increase access to federal lands, and provide
incentives such as Section 29 tax credits to encourage development
of new supply sources;
- work with FERC and other agencies to streamline and coordinate
the permitting process and allow flexibility in construction
- promote the co-firing of coal and natural gas in power
generation as a means of emissions reductions; and
- monitor climate change hearings and discussions and focus on
those requirements that would increase natural gas use.