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REX Testing Shuts in Rockies Gas as Hurricanes Approach

September 1, 2008
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Major producers have asked FERC for an immediate injunction and expedited technical conference to bar Rockies Express Pipeline (REX) from carrying out hydrostatic testing on its line in September, a move that they say could shut in half of the Rockies natural gas flowing on the pipeline at the height of hurricane and storage injection seasons.

Citing a news report, ConocoPhillips, Shell North America LP and Yates Petroleum Corp. told the Federal Energy Regulatory Commission (FERC) that "analysts have estimated the REX test could affect 900,000 Mcf/d out of 1.25 Bcf/d flowing on the pipeline." And while a portion of the displaced gas could be rerouted, analysts calculate that about 500,000 to 800,000 Mcf/d would be stranded in the Rockies, they said.

"This will short the U.S. natural gas market by approximately 18 Bcf during the peak of the hurricane season" if the REX test occurs as planned between Wednesday (Sept. 3) and Sept. 26, the producers said. They urged FERC to respond to their request by Wednesday [CP08-460]. At press time Friday there was no response from FERC.

As Hurricane Gustav bore down on the Gulf of Mexico Friday and with the possibility of a one-two punch including Tropical Storm Hanna, which could cross Florida and also go into the major producing area in the Gulf, shutting off back-up supplies from the Rockies could become more problematic.

"The Indicated Shippers [producers] believe that the devastating impact on the REX shippers and the natural gas industry can effectively be eliminated by delaying the testing for a period of 60 to 90 days. The proposed September time period coincides with the peak of the hurricane season in the Gulf of Mexico, and with the storage injection season for most LDCs [local distribution companies]." The delay proposed by the shippers would put the downtime in the heating season when at least some of the excess gas could be used locally in the Rockies.

The trio of producers are seeking a delay of REX's hydrostatic testing of its line for one simple reason -- monetary gain, REX charges. They "are only interested in delaying the test and the outage until the demand for gas is stronger due to the winter season, thus yielding them higher prices in the marketplace," REX said in response to the producers' plea. In addition to being a shipper, ConocoPhillips is part owner of REX. The other two owners are Kinder Morgan Energy Partners LP and Sempra Pipelines & Storage.

If FERC delays hydrostatic testing for 60 to 90 days, as requested by the producers, "markets in the Midwest and Chicago will be deprived of gas during the winter heating season," resulting in higher costs to consumers there, the pipeline told the agency [CP08-460].

REX called on FERC to deny the producers' plea, saying it was "legally and factually baseless." The producers constitute three of 12 shippers with firm capacity on Rockies Express, the pipeline said.

The REX pipeline further said Rockies producers will not be forced to shut in their gas as a result of the testing. "There is more than adequate capacity to move production to trading hubs in the Rockies and out of the Rockies during September and October; the issue for Indicated Shippers is merely low demand, which affects price, not the ability to keep wells flowing."

But another Rockies producer believes differently. "With the way production has been growing out here -- up about 1 Bcf/d so far this year -- pipelines will be maxed out with the loss of so much REX capacity," he told NGI. He said he expected several independent producers to shut in their gas during September. Houston-based Ultra Petroleum will be forced to shut in 100 Mcf/d (a total of 3 Bcf) of its Rockies gas due to the REX testing, said spokeswoman Kelly Whitley.

The REX pipeline plans to conduct the hydrostatic testing on a segment of its mainline between Steele City Compressor Station in Gage County, NE, and Turney Compressor Station in Clinton County, MO. REX said the 26.6-mile leg of the pipeline did not get tested at a high enough pressure to allow for the maximum allowable operating pressure of 1,480 psig. It added that this will be necessary before the REX-East segment of the line is placed in service to Lebanon, OH, in January 2009.

Hydrostatic testing will require all of the natural gas to be removed from the pipeline, after which the pipe is filled with water, at a designated pressure, for additional testing.

"During the testing period, no service will be available at either the ANR [Pipeline] Brown or the [Panhandle Eastern Pipe Line] Audrain delivery points. REX allowed shippers holding primary capacity at these points to permanently redesignate their primary rights to other points...But this provided only minimal relief because it was dependent on capacity being available at those other points...The net effect was only to reduce the impact on shippers from 950,000 Mcf/d down to 750,000 Mcf/d," or about 50% of the REX mainline capacity, the producers said.

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