FERC approved a new market link for Rockies gas last week, giving the go-ahead for construction of EnCana's Entrega Gas Pipeline, featuring 328 miles of 36- and 42-inch, line from the Piceance Basin through the Wamsutter Basin and Hub in Sweetwater County, WY, to the Cheyenne gas trading hub in Weld County, CO, where several eastbound pipelines converge.
The line, to be constructed at an estimated cost of $664 million, will provide up to 1.5 Bcf/d of firm transportation capacity, all taken by an affiliate, EnCana Marketing (USA) Inc. The Federal Energy Regulatory Commission approved a final environmental impact statement for the pipeline in early July (see NGI, July 4).
Entrega proposes to construct the project in two phases. Phase I involves the construction of approximately 136 miles of 36-inch diameter pipeline extending from the Meeker Hub in Rio Blanco County, CO through Moffat County, CO to Wamsutter in Sweetwater County, WY and approximately 191 miles of 42-inch diameter pipeline extending from Wamsutter through Carbon, Albany and Laramie Counties, WY and Larimer County, CO, to the Cheyenne Hub. This includes construction of seven delivery/receipt meter stations at interconnects with existing or proposed pipelines.
The Phase I facilities have a capacity of 750 MMcf/d, and a projected in-service date of Jan. 1, 2006. Entrega plans to provide interim service on the first portion of the line between the Meeker Hub and Wamsutter when that portion is completed. The pipeline asked FERC for approval by Aug. 1 so it could get construction started by Aug. 15 to meet its Nov. 15, 2005 date for service to EnCana Marketing.
Phase II involves adding compression, including 15,400 horsepower Meeker Hub Compressor Station; a 30,000 hp Bighole Compressor Station in Moffat County, CO; and a 20,620 hp Wamsutter Compressor Station in Sweetwater County, WY. The compression, expected to be completed by April, 2007, will boost the Entrega pipeline capacity to 1.5 Bcf/d.
The proposed pipeline will interconnect with the Colorado Interstate Gas (CIG) and Wyoming Interstate Co. Ltd. transmission systems at Wamsutter, carrying supplies to markets east and west of Wamsutter; and it will connect with CIG, Cheyenne Plains Gas Pipeline, Trailblazer Pipeline and Public Service Co. of Colorado at the Cheyenne Hub, delivering gas to markets in the Midwest and Central U.S. and the Eastern Slope south of the Cheyenne Hub.
While Entrega will augment one segment of the delivery route out of the Rockies, recent developments show the bottleneck simply being pushed downstream. While Entrega into Cheyenne will get the gas to Kansas, MidContinent lines are having trouble picking up additional Rockies supplies at the same time production is gaining in the older, traditional basins feeding the MidContinent lines. To remedy the problem Kinder Morgan is floating the idea of a pipeline directly from the Rockies (Wamsutter) to the premium markets of the East Coast (see NGI, July 25 and Aug. 8).
Entrega is offering firm and interruptible transportation services with postage-stamp rates, interruptible parking and lending services, and interruptible automatic parking and lending services. Entrega proposes two-part recourse rates for firm transportation service. For interruptible transportation service, Entrega proposes one-part recourse rates based on a 100% load factor derivative of the firm transportation rates.
FERC rejected a protest from BP against the postage-stamp rates. The producer claimed Entrega designed the postage stamp rate structure for affiliate EnCana Marketing, which favors the long-haul, multi-year service, and this explains why no other shippers bid for the capacity, especially for partial-haul, short-term service. The other shippers were afraid they would have to pay the cost of hauling gas across the entire Entrega system, BP said, adding that the fact gas will enter the line all along its course argues for distance-based rates. The producer claimed the single rate will impede development of the Wamsutter hub, which is roughly midway along the system.
Entrega argued there are currently no "Wamsutter shippers" on the proposed pipeline, saying BP has presented no evidence showing Wamsutter to be a market center. Nor did BP nor any other shippers bid during the open season even though Wamsutter was listed as a possible receipt point. Entrega described Wamsutter as just one of the many different producing areas in the Rocky Mountain region and is not an aggregation point for supply from various producing areas like the Cheyenne Hub.
In rejecting the protest, FERC said there is no dispute among the parties in this proceeding that there is a need for increased pipeline capacity to access supply sources in the Rocky Mountains, and noted its rules permit project sponsors flexibility in designing new pipeline projects. There are no hard and fast rules regarding the minimum length of a unidirectional pipeline that would justify distance rates, the FERC order said, pointing also to the fact there is no need for other rates when the full capacity is subscribed for the entire length of the pipe.
The Commission also rejected BP's protest to Entrega's rate calculation, which calls for a Phase I maximum reservation recourse rate of $12.413 per Dth, and a Phase II maximum reservation recourse rate of $7.072 per Dth, as well as the Interim Service maximum reservation recourse rate of $4.681 per Dth, which are based on (1) a return on equity of 12%; (2) a 7% cost of debt; (3) a total effective tax rate of 36.03%; and a straight-line depreciation rate of 2.86% (or 35 year useful life).9 The overall pre-tax rate of return is 14.64%. 26. Entrega uses the Straight Fixed-Variable (SFV) method to design the firm transportation rates.
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