TransCanada Corp. and Northwest Natural Gas Co. (NW Natural) have formed a joint venture to build a natural gas pipeline to serve markets in Oregon, the Pacific Northwest and the western U.S. and potentially carry regasified liquefied natural gas (LNG) if an LNG terminal is constructed on the Columbia River, the companies said last week.

TransCanada and NW Natural are equal owners of the venture, which is called Palomar Gas Transmission LLC. If approved, the pipeline is scheduled to begin service in late 2011. TransCanada's Gas Transmission Northwest System (GTN), headquartered in Portland, would operate the pipeline. An open season was held in September (see NGI, Oct. 2, 2006).

The partners are seeking a federal certificate to build and operate a pipeline extending approximately 220 miles from northwestern Oregon to north-central Oregon. Palomar would connect TransCanada's existing GTN System in central Oregon with NW Natural's distribution system near Molalla, OR, approximately 30 miles southeast of Portland. NW Natural's utility operation has agreed to contract for about 100 MMcf/d of capacity on the 36-inch-diameter pipeline.

"NW Natural currently depends on a single interstate pipeline for its supply, approximately two-thirds of which comes through the Columbia Gorge," said NW Natural COO Gregg Kantor. "The Palomar pipeline would significantly diversify our delivery options and enhance reliability for NW Natural's customers." NW Natural serves about 641,000 residential, business, and industrial customers in Oregon and southwest Washington.

NW Natural has been proposing to build some version of Palomar for years to overcome the fact that there is only one major pipeline bringing gas into its system. "We actually had a working agreement back in the 1990s with Pacific Gas Transmission when it owned and operated the pipeline out of Alberta," Randy Friedman, NW Natural gas supply director, said in November. "It was called the 'Portland Lateral' at one time. We just concluded an open season on it the end of October."

NW Natural's CEO Mark Dodson cautioned that Palomar was in the very preliminary stages of what he estimates will be a two-year permitting process for the pipeline, the size of which could vary between 24 and 36 inches in diameter, depending on the shippers that are lined up. Dodson made his comments during a second quarter earnings conference call last week, reporting modest profits of $2.6 million (10 cents/share) compared to $2 million (7 cents/share) for the same period in 2006.

"While we're excited about the progress made on Palomar, since we've been trying to build a link between the Williams and the old Pacific Gas Transmission systems for the last 35 years, this is still very early in the project and unfortunately we cannot talk about commercial discussions with potential shippers at this stage," Dodson said.

"From a financial perspective Northwest Natural could not support the pipeline by itself," he said. "We'll be actively trying to sign up other customers. We'd love to have enough customers to do a 36-inch pipeline, but it could end up being smaller."

NorthernStar LLC, developer of the proposed Bradwood Landing LNG terminal (see NGI, July 2), may elect to take capacity on Palomar should the Bradwood Landing terminal and the Palomar pipeline be constructed.

"This project is being designed so that, if an LNG terminal is constructed on the Columbia River, the Palomar pipeline can be extended to serve it," Kantor said.

In response to a question from analysts on the conference call, NW Natural executives said that the ongoing LNG permitting process is "pretty orderly," and NorthernStar is looking for its permit in the first quarter next year. "They are about 18 months ahead of the other proposed terminals," said Dodson, who noted he is a "big supporter" of LNG as a backup to increased reliance on renewable sources of energy for power generation.

The total cost of the project is estimated to be between $600-700 million in current dollars if both proposed sections are built. Palomar will request preliminary environmental approval for the project from the Federal Energy Regulatory Commission (FERC).

The Palomar developers are not alone in their desire to build a pipeline in the Northwest and at least partially fill it with regasified LNG.

In June, Oregon LNG, a unit of Leucadia National Corp., said it gained FERC approval to use the National Environmental Policy Act (NEPA) pre-filing process for its proposed LNG receiving terminal at the mouth of the Columbia River on the Oregon side. It proposes to develop the project and related pipeline originally conceived as Skipanon by Calpine Corp. (see NGI, June 25). Oregon LNG purchased the development rights from Calpine in February. Also in June, Oregon LNG confirmed it was beginning the pre-licensing review phase with FERC to build a 117-mile pipeline along the Oregon side of the Columbia River to link its proposed LNG terminal with the major interstate pipelines traversing Oregon's Interstate 5 highway corridor.

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