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SoCal Wary of Questar's New California Pipeline

SoCal Wary of Questar's New California Pipeline

Interstate natural gas pipeline Questar's desire to buy a 16-inch-diameter under-utilized oil pipeline from New Mexico to California with the intention of converting it to a 120-130 MMcf/d, 700-mile interstate natural gas pipeline is drawing contrasting responses from the two natural gas utilities here in Southern California.

The nation's largest gas distributor, Southern California Gas, is keeping a wary eye on the deal, having unsuccessfully opposed two new interstate pipelines into the state early in this decade. Neighboring municipal gas utility, the City of Long Beach Gas Department, where the converted pipeline would terminate is very interested in tying in with a new supplier.

The pipeline that Questar Pipeline Co. intends to buy from ARCO Pipe Line Co., Houston, originates in the Paradox Basin in New Mexico, crossing into California at the Arizona border and ending in Long Beach (population 440,000), the state's fifth largest city and a major international port paired with the City of Los Angeles Harbor.

The city-operated Long Beach Gas Department attempted to buy the pipeline eight years ago, but negotiations broke down, according to Chris Garner, general manager of the department. He thinks his department is a logical potential customer for Questar and indicated the department will be meeting with the pipeline later this month.

"We're very interested in that pipeline," Garner said. From one-third to half of Long Beach's supplies come from local sources within the city, which sits atop one of the 20th Century's largest oil fields. The rest of the supplies come from out of state, most in and around the San Juan Basin. The department buys its own supplies and has a five-year transportation agreement with SoCalGas that expires at the end of next year, Garner said.

Long Beach has a daily load of about 35 MMcf, or 13 Bcf annually.

It has 150,000 customers with annual gas revenues of about $75 million. SoCal officials indicated they will monitor the Questar project, which could be the third new interstate gas pipeline into California in less than a decade, for its timing (expected to be completed in the next 18-24 months) and the competitive rate it charges.

Constructed in 1957 to ship crude oil, the purchase by Salt Lake City-based Questar includes ARCO Lines 90, 91 and 92 for $40 million. Questar will seek Federal Energy Regulatory Commission approval to convert it. Successful oil-to-gas conversions have taken place elsewhere, and Questar calls the ARCO pipelines "readily convertible," which will include reconditioning and the addition of compression.

"Our strategy is to expand our transmission footprint," said Nick Rose, Questar Pipeline's president/CEO, noting the pipeline's location is "strategically significant" for several reasons:

"It complements others' projects already in progress; it provides access to significant natural gas supplies (in the San Juan Basin) and markets; and it gives us access to other major interstate pipelines serving the California market. Access to those lines allows us the flexibility of developing service in segments depending on market development."

At the beginning of this year, the CEO of the pipeline's parent, $1.9 billion Questar Corp., emphasized that the company intended to spend more than $300 million in capital this year in support of its five-year goal of doubling both its capital and gas/oil reserve holdings. From 1992 through 97, Questar reportedly spent $1 billion in capital additions and increased its gas reserves to 1 Tcf.

"We're looking to spend $2 billion over the next five years," Questar CEO R. D. Cash said at the outset of 1998.

Richard Nemec, Los Angeles

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ISSN © 2577-9877 | ISSN © 1532-1266
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