El Paso Fears Expansion to Ease Bondad Constraint May Be Doomed
El Paso's Bondad System in the San Juan Basin is constrained to
the point that some gas traders mockingly refer to it as "Bondage."
Anything to ease the constriction ought to be welcomed with open
arms by those who deal with that point, right? Yet the pipeline's
Bondad Expansion project, aimed at adding 116.5 MMcf/d to the
system's current capacity of about 567.7 MMcf/d, is in danger of
failing because FERC feels the three shippers paying all of the
project's costs should share their expansion space with
A little background: Bondad is a short 33.7-mile segment running
from the Ignacio Plant in the southwestern corner of Colorado to a
point near El Paso's Blanco Plant in northwestern New Mexico.
Ignacio also is the southern terminus of Northwest Pipeline. The
system has one station with gas turbines powering three
El Paso says the Bondad System has experienced significant
curtailments in recent times, to the extent that it "has been
forced to deny requests for transportation of 82,806,885 Mcf
through the system during the period from June 1997 to April 1998."
To accomplish the expansion, El Paso proposed to remove the three
existing turbines and replace them with more powerful ones. No new
pipe is involved, said Richard Baish, president of El Paso Natural
Gas. The project would remove the basis differential between El
Paso's Blanco and Bondad pools in San Juan Basin and allow Bondad
gas to compete more effectively in the market, he said.
Following an open season held during August and September of
1997, El Paso contracted with three companies for firm expansion
capacity. Enron Capital & Trade Resources took the lion's share
of 100 MMcf/d in a 10-year agreement. Elm Ridge Resources got 10
MMcf/d, also in a 10-year agreement, while Conoco got the remaining
6.5 MMcf/d in an eight-year agreement.
El Paso's filing sought to have expansion capacity treated as a
block separate from existing Bondad capacity. This was done to
ensure that the new space was committed to the people who were
paying for it and took nothing from other shippers, Baish told NGI.
"That was very important to this deal," he added. Any time
expansion capacity goes unused by the three contracted shippers, it
will be up for grabs to anyone else.
But FERC, in its Aug. 31 order certifying the project, rejected
the separate allocation of expansion capacity and told the pipeline
to use rolled-in rates for the capacity instead of incremental
ones. Based on those requirements, Baish said, whenever future
Bondad nominations exceed capacity El Paso would have to allocate
total (existing plus expansion) capacity on a pro rata basis among
all firm shippers. That quite likely would result in the three
expansion shippers being denied some of the extra space they had
paid for. "That's not quite fair and also bad economics," Baish
El Paso has a 10-year rate moratorium through the year 2005, he
said. "The FERC certificate says to roll in expansion costs, but
[because of the moratorium] we can't do it." In a Sept. 30 request
for rehearing of FERC's order, the pipeline argued that existing
system shippers would benefit from the expansion in the form of
revenue credits and increased service reliability and flexibility.
In addition, they can benefit from using the expansion capacity on
a pro rata basis "to the extent it is not being utilized by the
As the largest by far, Enron's contract is the key to whether
the Bondad Expansion will become reality, Baish said. Enron has two
provisions for canceling the contract: if its expectations are not
met, and/or if the expansion is not in service by the end of 1998.
"That [end-of-year] deadline cannot be met at this point," Baish
said. "We asked for June 1 approval, but didn't get the certificate
until September." And the onerous changes ordered by FERC are
causing further delay, he said.
El Paso can't say for certain what Enron will do (it has until
Dec. 1 to decide) "but our expectation right now is they will
terminate the contract," according to Baish. El Paso already has
spent $1.4 million in preparation work for the project and it would
take another $2.4 million to complete, he said. The company can't
throw good money after bad without knowing it will have an anchor
shipper as part of the expansion, Baish said.
"I don't know if we failed to explain the project properly,"
Baish concluded. "FERC went along with other shippers who wanted
something for nothing."
Roger Tanner, Houston