Going forward LNG will serve the West Coast and the Gulf Coast with incremental supplies, which also will travel via the pipeline alley from the Gulf to the Midwest, so that leaves the East Coast as a prime market for increased Rockies production in the future, according to Scott Parker, president of the natural gas pipeline group at Kinder Morgan. All it needs is a pipeline to get it there.

Parker showed producers at the Colorado Oil and Gas Association annual meeting a slide with a straight line drawn across a map of the United States from the Rockies to the East Coast. The line represented a 1,500 mile, 42-inch, 2 Bcf/d pipeline from the Wamsutter Hub to eastern Ohio, with a possible extension to the eastern hub at Leidy and a possible extension on the other end to Opal. The line would have 40 interconnects.

Production already is starting to fill existing pipes out of the Rockies and a number of speakers at the COGA conference talked about the growing basis differential that once again faces Rockies gas and is expected to grow (see Daily GPI, July 22). So Kinder Morgan is planning ahead. “We just started to put the project on the table about six months ago,” Parker said. While there is capacity to the Midcontinent there also is access to plentiful supplies right there.

The options to go farther east are limited, and stringing together a series of smaller pipes to the East Coast would result in rate-stacking.

In the future, analyzing markets means figuring where the liquefied natural gas (LNG) will be coming in. “Don’t fight LNG,” Jeff Rawls, vice president of business development for Kinder Morgan’s western pipelines, advised another COGA group. While LNG terminals already are under construction on the Gulf Coast and in Baja California, Mexico, LNG terminal development on the U.S. East Coast is fighting heavy “not in my back yard” (NIMBY) opposition.

Several terminals are being developed in the eastern Canadian Maritimes, they still are a long way from the main northeastern market and will have to add on transportation costs. Parker expects the major LNG impact to hit in 2008. Several speakers were questioned as to competition from Alaska gas, but dismissed near-term prospects, putting the possible delivery date to the Lower 48 at 2013-2014.

Going forward, Rawls sees Midcontinent and Southern California markets trending out. Southern California isn’t willing to pay enough for incremental supplies and Houston Ship Channel prices going forward are showing -10, -20 and -30 cents off the Henry Hub price. In contrast, “Northeast markets have the demand and are willing to pay.” The direction is east and the goal is “to get as close to New York as possible.”

Rawls said he has been on the road for the last three months, offering the concept to producers and eastern local distribution companies (LDC), to determine the level of interest. The important thing is to get backers for the project, and Rawls said they are open to suggestions and could include shippers as participants. Producers would add 90 cents/MMBtu to their netbacks, Kinder Morgan estimates, while LDCs would knock 25 cents/MMBtu off their prices. The larger benefit makes producers the prime candidates to back the project with firm contracts and/or as sponsors.

Producers are interested, but it’s “early days,” several told NGI. “It’s a concept and it’s good we’re talking about it,” Alan Harrison, vice president-northern area for Kerr-McGee Rocky Mountain Co., said. Harrison, who also is COGA president this year, pointed out that a large number of the 40 interconnects for the proposed pipe are in the MidContinent. This would allow the long line to also pick up MidContinent gas and carry it east.

“I’m glad to see the idea is being talked about,” Ralph Hill, senior vice president and general manager of E&P for Williams, said. While Williams, which acquired the old Barrett Resources properties, is just about fully contracted for capacity out of the Rockies through the end of the decade, “we don’t want to see gas shut in.” As to which are the best markets, “it’s important to preserve optionality. We’ll be going East, West and South.”

Producers need to sign on to develop new capacity. Hill pointed out that Williams is the anchor on a new WIC expansion. “We think others should jump on.”

Another producer said the rationale is “clear as a bell when prices in New York are $9/MMBtu and $7 in other locations.”

Major themes running through the annual Rockies gathering were the difficulties finding qualified personnel, and working on new ways to cooperate with local and environmental groups so drilling can go forward.

Noble Energy Chairman Charles Davidson said “there are thousands of potential projects in the Rockies, but constraints will be based on people more than anything else.” Noble joined the Rockies conference this year based on its acquisition last year of Denver-based Patina Oil and Gas.

Fred Barrett, president of the new Bill Barrett Corp., agreed the biggest problem was getting qualified people. Both the old and new Barretts are concentrating on the Piceance Basin. Williams has 16 rigs going and expects to have 26 a year from now, Hill said. Bill Barrett, which currently has four rigs operating in the Piceance and 80 wells, is branching out into the Uinta play, which Fred Barrett called a “sister” to the Piceance. Most of the remaining Rockies resources are in unconventional plays, he said.

A number of speakers stressed ways to do advance work educating and negotiating with communities to find a workable plan and avoid extended confrontation and litigation. One environmental expert advised that producers shouldn’t go into negotiations with a compromise plan or they will lose ground. They need to let the compromise develop during negotiations. Jim Sims, executive vice president, Partnership for the West, agreed producers should seek cooperation, but they also should keep their troops armed and ready.

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