NGI The Weekly Gas Market Report
American Electric Power Thursday announced it has made a majormove to expand its wholesale natural gas business in the Southwest,agreeing to acquire the 2.4 Bcf/d Houston Pipe Line (HPL) alongwith the Bammel storage field, one of the largest storage fields inNorth America, from Enron. AEP said since some details remain to beworked out, it was not disclosing the terms of the transaction atthis time. AEP will be acquiring the stock of HPL and it expects tocomplete the deal in the next couple months.
HPL, one of the two original pipelines joined by Enron ChairmanKen Lay to form the company in the mid-1980s, has an extensive4,400 mile transportation and gathering system through southernTexas. The 118 Bcf Bammel field, located near the Houston ShipChannel market area, has a 65.7 Bcf working gas capacity and isknown for its fast in and out capabilities. It has a 1.4 Bcf/d peakwithdrawal rate and a 365 MMcf/d injection capacity.
“Adding HPL to our natural gas asset portfolio will help usreach our goal of becoming a top-10 gas trader and marketer,” saidPaul Addis, executive vice president for AEP. The company currentlyis second in the U.S. in electricity volume. “HPL will enhanceAEP’s natural gas business with its multiple connections into theproduction areas of Texas, its numerous interconnects withintrastate and interstate pipelines and its position in and aroundHouston as a premier provider of natural gas.”
AEP, headquartered in Columbus, OH, has numerous powergeneration plants in the Midwest and Southwest, including a numberof gas-fired plants in Texas. In 1998 it bought the LouisianaIntrastate Gas (LIG) system.
John Olson, energy analyst with Sanders, Morris & Mundy inHouston, said “for 55 years HPL has enjoyed a reputation as one ofthe strongest pipelines in the country. As a stand-alone operationit is first class. It’s a very, very strong asset.” He said HPL hasbeen showing losses of $50 million a year or more in recent years,”but those numbers are meaningless” because Enron has been using itat discounted transportation rates to underpin its marketingefforts. Olson said the sale is a continuation of Enron’s move tosell most of its hard assets and become a soft asset player. “Theyare emphasizing their trading. They are doing far better attrading.”
For one Houston-based risk manager, the sale of HPL by Enron wasa question of rate of return. The competition among intrastates inTexas is fiercely competitive and for gas delivered to the HoustonShip Channel it can be a game of half-cents, with a shipper on oneof the multiple intrastates undercutting another to try to shave aprofit, he said. Enron recognized this and wanted out, hespeculated.
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