Despite 10-year low natural gas prices dampening the short-term economics, more gas pipeline and storage infrastructure ultimately is needed in the Pacific Northwest, according to Gregg Kantor, CEO of Portland, OR-based NW Natural Corp. Kantor made the remarks in reporting decreased profits on a conference call with financial analysts Tuesday.

Net income for 4Q2011 was $29.2 million, or $1.09/share, compared with $29.5 million, or $1.11/share, for the same period in 2010. For all of 2011, net income was $63.9 million, or $2.39/share, compared with $72.7 million, or $2.73/share, for all of 2010.

NW Natural's landscape includes a "unique mix" of challenges and opportunities, and Kantor sees its growing gas storage business and prospects for new gas pipeline infrastructure as part of the plus-side of the ledger. He made this assessment while acknowledging that lower-priced and widespread gas supplies have been good for retail customers, the low commodity prices have driven down storage values.

"That is creating a challenging environment for our storage business," said Kantor, adding that NW Natural has completed the first full year of operations at its Gill Ranch storage facility in Northern California. He said the company should have contracts covering its share of the full 15 Bcf capacity at Gill Ranch by the end of this year.

"This year our capacity at Gill Ranch is almost all contracted out," he said. "We're also doing a very good job of managing the facilities operating costs."

Noting that storage values today are not where he would like them to be (2011 net income $4.1 million), Kantor said that "given the projected demand for gas to serve electric generation in the West, we believe in our strategy and the value of storage over the long term. In 2012 our focus on the storage business will remain consistent. We will execute on our operating plans and identify new commercial opportunities that take advantage of the growing reliance on natural gas."

Kantor said the continued pressure for developing more gas-fired generation in anticipation of two major coal-fired plants in the region being eventually closed underscores the need for the proposed Palomar Pipeline project, albeit in a revised, and smaller scale (see Daily GPI, March 1, 2011).

Noting that although the Palomar application to the Federal Energy Regulatory Commission was withdrawn last year, the partners in the project announced their intent to file a revised application. "This year our goal is to continue to work with Northwest utilities to consolidate the effort to find a single, integrated solution around a shorter route that reduces the number of miles the pipeline crosses in the Mount National Forest."

There are plans for an open season this year to assess the level of market interest in the revised pipe project, Kantor said. This is aimed at "identifying enough shipper support to proceed with the planning process," he said.

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