El Paso's Continental Connector project is shaping up a little bit differently than originally anticipated with strong demand for capacity from producers in the Barnett Shale of North Texas and in other Midcontinent basins, said Gary Charette, vice president of El Paso's Pipelines Group.
The larger-than expected interest from the Barnett Shale has come about because of the location of a pipeline lateral that Continental Connector is planning from the Perryville Hub in northern Louisiana. "There are a couple of other [pipeline] projects coming out of the east side of the Barnett Shale/Bossier area," Charette said in an interview with NGI. "We're really going to hit the north and west ends of the Barnett Shale, which is kind of the opposite side of that prospect from where these other projects are coming from. We'll give producers a different outlet.
"There's a lot of gas there," he noted. "Until you start talking to the producers, you don't realize how much gas is already being produced there and what the prospects are for more. It's a little bigger of an opportunity than what we originally thought."
Charette will be among nearly 30 speakers at GasMart May 3-5 in Denver, CO. His panel will include Fred Barrett, CEO of Bill Barrett Corp., Porter Bennett, president of Bentek Energy, and Stuart Nance of Ultra Petroleum and will be moderated by John Harpole, president of Mercator Energy. For additional details on the conference, go to http://gasmart.com/.
Charette said the Continental Connector project is evolving into a slightly smaller pipeline initially (1 Bcf/d instead of 2 Bcf/d) with more interest from the eastern end than from the western end. Eventually, however, that may change as competitor Rockies Express pipeline enters service.
Kinder Morgan and Sempra Energy's $4 billion Rockies Express project would transport 1.8 Bcf/d of gas to Ohio from Wyoming and Colorado but would interconnect with multiple pipelines along the way potentially backing up supply into Southwestern producing basins. Ironically, that may end up helping Continental Connector.
While Rockies and western Midcontinent producers currently may be somewhat less enamored with the El Paso project, some of the market dynamics that will make it a reality are already starting to show up, said Charette. Gas already is being constrained at Greensburg, KS, where Cheyenne Plains delivers Rockies volumes into Panhandle, ANR and Northern Natural. Once Rockies Express is built, that problem will be even worse, he said.
"If you think about [Rockies Express], once it gets built, it will be hitting those Southwest pipelines. I think that's going to put additional pressure on the Midcontinent volumes coming down on Cheyenne Plains and other pipes that move gas out of there," said Charette. "Right now whether it's ANR, Panhandle or Northern Natural, the pipelines that transport gas from Greensburg up into the market area, [Rockies Express] is going to hit them midway up so I think the potential is there to back-up gas, particularly when the first phase of [Rockies Express] gets built.
"That gas will need to go somewhere," he noted. "It seems pretty logical to me" that shippers would look to Continental Connector to move that gas East. "I've talked to shippers about that, but whether they share my thoughts or not I guess [we'll find out]."
Charette added that El Paso is "right in the midst of locking up some key customers." The project as originally envisioned would connect six of El Paso's pipeline systems, including Colorado Interstate Gas, Wyoming Interstate (WIC) and Cheyenne Plains, with points to the East on ANR Pipeline, Tennessee Gas Pipeline and Southern Natural Gas. Florida Gas Transmission also would have a connection to the project and multiple other third-party pipelines could be directly connected, including Natural Gas Pipeline Company, Texas Eastern, Texas Gas, Mississippi River Transmission, Columbia Gulf, Southern Star Central and Transco.
A key link in the chain would be a lease of capacity on the Enogex pipeline system across Oklahoma. El Paso intends to lease 750,000 Dth/d of capacity on Enogex initially. Enogex also was expected to hold capacity on Continental Connector but that transaction is still being negotiated, said Charette. "The deal with Enogex is that they are going to provide leased capacity and will act as an aggregator for producers into the project," said Charette. "We're still in negotiations" on the rest.
According to the deal, Enogex would receive gas into its system at Custer, OK, and transport it under a long-term lease arrangement for redelivery in Bennington, OK. From there, gas would be transported on Continental Connector through new pipeline facilities to the Perryville Hub in North Louisiana to a termination with Tennessee Gas and Southern Natural Gas at Pugh, MS.
"The project is on schedule," Charette said. "Right now we are talking about April 1, 2008 as an in-service prediction. We've been out there doing a lot of land work in anticipation of a filing [with FERC] later this year.
"I think most people who are knowledgeable in the industry recognize this phenomenon" that the Eastern markets need supply and the West and Midcontinent have supply to provide; "it's just a matter of connecting the dots, so to speak.
"If you put the map of El Paso down, it makes sense to connect our western pipes with our eastern pipes. It's a very logical project... We've tried to bond with a company like OGE to utilize their system as much as possible to haul the gas so that we don't have to build a total greenfield pipe. It certainly has synergies from a cost standpoint but also from an environmental standpoint and landowner standpoint."
Charette said El Paso has been working with potential shippers to provide seamless transportation options where possible, but in the end shippers will have to negotiate with other pipelines separately. "We are not bundling it with downstream offers," he said.
"We are going size the steel and size the compression based on what the ultimate [maximum daily quantity] is, and the recourse rate will be a fall-out of that. I can tell you that we are talking about a 51-cent rate from end to end [for a 10-year contract], from let's say the ANR Southwest gathering area to Perryville."
Rockies producers would have to negotiate separately with Cheyenne Plains for transportation to Greensburg, KS, first. "We can facilitate discussions with El Paso affiliates, and we are having those kind of discussions with various shippers, but they are separate discussions per FERC rules."
Charette said shippers should recognize that the flexibility of having multiple market outlets for gas at Perryville and further downstream make the project a home run. "We think that for the foreseeable future there will be a lot of demand for this pipeline route that we're establishing," said Charette. "There's 20-25 Bcf of gas today that flows through pipes in the Perryville area, and even if you put another 1 or 2 or even 3 Bcf/d in that area, maybe all that does is make up for gas that won't be coming out of the Gulf."
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