Economics in the western Canadian natural gas patch and the movement of increasingly more Rockies supplies east is being felt more in terms of wholesale price and supply pressures in the Pacific Northwest, according to Northwest Natural Gas Corp.'s CEO Mark Dodson. As a result, the need for siting a liquefied natural gas (LNG) terminal in the region is growing, he said during a 2007 earnings conference call Feb. 14.

Within this simmering stew, Portland, OR-based Northwest is eyeing a wider, regional role with two infrastructure projects that will enhance natural gas pipeline and storage infrastructure on the West Coast. Those plans are proceeding as envisioned, according to Dodson in announcing increased earnings in 2007 of 17% and 21% for net income and earnings-per-share, respectively ($74.5 million, or $2.78/share).

Dodson gave some insights behind the Northwest natural gas sector's state of flux in responding to financial analysts' questions on the earnings call in which he stressed that Northwest Natural intends to build up the region's gas infrastructure with well-placed pipeline and storage projects that eventually can interconnect to imported supplies from LNG.

"One of the reasons that the [220-mile, 36-inch-diameter joint venture] Palomar Pipeline is important to us is that we need to draw from as many Canadian reservoirs as we can and have access to that interstate pipeline," said Dodson, referring to Northwest's proposed pipeline joint venture with TransCanada.

Meanwhile, backers of NorthernStar Natural Gas' Bradwood Landing LNG project, slated for a site along the Columbia River, wrote Feb.12 to Oregon Gov. Ted Kulongoski to address concerns he and others have raised about the project's Federal Energy Regulatory Commission (FERC) environmental review. Last December the governor's staff sent a memo to FERC that was critical of the environmental review of the project. NorthernStar is expected to also address that memo in a formal progress report to the federal regulators later in the first quarter.

In addition to repeating its often-cited need for additional natural gas supplies in the Pacific Northwest, NorthernStar in the letter provided more detail to the state on what it called: (a) detailed geotechnical site evaluations, (b) a contention its environmental plan exceeds requirements, (c) proposed dredging in the Columbia River will have "minimal environment impact," (d) NorthernStar is prepared to pay for all safety and security guards, and (e) as a long-range contingency, a decommissioning plan has been developed on the proposed 1 Bcf/d terminal.

Pipeline proposals, such as the Northern Natural-TransCanada project, are being developed separately, but the FERC environmental review will be done concurrently on the proposals. The regional energy situation drives both as Dodson outlined.

He called the Canadian reserves "a little shallower than they were in the past," so the expectation is fewer supplies -- at least at current prices -- longer term. "We anticipate we are going to see a little less gas out of Canada," he said, although in response to another question another senior utility executive added the caveat that Canadian producers indicate there is still plenty of gas it is just a matter of how much a buyer is willing to pay.

In response to a questions on the Rockies supplies, Dodson said the Rockies Express pipeline (REX) is "going to put some pressure on the Northwest in terms of price, but it is a little hard to know what it is going to do in terms of supply."

Northwest Natural gets about 75% of its supplies from western Canada and the rest from the Rockies, and Dodson said the dependence on those two areas is "another reason why LNG is an option for this region."

Northwest Natural COO Gregg Kantor said he was on a tour of Canadian production areas Wednesday, and the producers there clearly indicated price was the only barrier to added western Canadian supplies. "They are quick to remind anyone that while reserves are declining, there is still lots of supplies to purchase up there -- it is must a matter of price," Kantor said.

Northwest Natural's infrastructure projects are both joint ventures that have drawn positive responses from potential stakeholders and customers, said Dodson, who described his gas utility company's current state as "a more efficient and agile company."

With TransCanada, Northwest is pursuing the Palomar Pipeline out of western Canada that potentially can interconnect with a LNG terminal along the Columbia River where several projects are proposed. Additionally, the Oregon utility has partnered with Pacific Gas and Electric Co. on the proposed Gill Ranch underground storage facility in northern California. Each are estimated to be $150 million projects for Northwest's share.

"Both would put Northwest Natural in an excellent position to help the Western United States meet its growing demand for natural gas," Dodson said. "Palomar will give us another direct connection to the interstate natural gas pipeline system, diversifying our delivery options and reinforcing supply reliability for our Oregon customers."

While expecting the regulatory process to be "long and rigorous," Dodson said Northwest will concentrate of regulatory approvals this year, seeking a decision next year with the pipeline in operation some time in 2010. "We also had good news regarding the Gill Ranch," said Dodson, noting that the response from a recently completed open season has reaffirmed Northwest's assessment that "California needs additional gas storage."

Dodson said the partners expect to start construction of the storage facility late next year and begin operations in 2010. "Given all this we feel confident about our ability to grow the company in 2008 and the years ahead."

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