A Kern River official said a large number of pipeline shippersexpressed interest in extending or signing new firm transportationagreements under the pipeline’s proposed term differentiated rateproposal, a rate discounting plan announced in late October. Thepipeline company received requests from nine new shippers, mostlymarketers, for 900 MMcf/d of firm capacity on its mainline underthe new rate design during a recent open season. In addition, eightout of its 11 existing shippers expressed interest in holding on to600 MMcf/d under new discounted rates.

The pipeline’s current capacity from the Rocky Mountain regionto markets in Southern California is 700 MMcf/d, which makes anexpansion appear likely. But the Kern official said it’s still tooearly in the process to determine if an expansion will be required.Over the next month, existing and new shippers will be engaged innegotiations over potential contract transfers or releaseagreements, which will determine eventual capacity additions.

“What I’m expecting is a marriage between the serious newshippers and any existing shippers that want to give up theircapacity. If for some reason we have new shippers that wantcapacity but couldn’t find it or existing shippers don’t give itup, I guess we’d have to look at an expansion. But it’s my opinionthat might not happen,” said Greg Snow, staff business developmentrepresentative. Snow said he expects “a good majority of existingshippers” holding the current 700 MMcf/d of system capacity wouldlike to get out of their existing contracts with the pipeline andlet a marketer manage that pipeline space for them.

“Kern River was built based on the backbone of the producingcompanies; they wanted an outlet for their gas. Since 1989, we’vehad a proliferation of all these marketing companies come in andfill a niche, that is getting more value for the transportation bymatching supply with a market. So we’re seeing more and moreproducing companies sign these marketing companies up as agents tomanage that. The majority of the new shippers are marketers.”

If an expansion is required, something less than 500 MMcf/dwould be expected. Anything more would increase rates. A smallerexpansion would lower rates, said Snow.

He said the company also recently received requests fromshippers for 1 Bcf/d on a proposed 150-mile extension into LongBeach, CA. The proposed lateral would be 24- or 30-inches indiameter and would be designed to carry a minimum of 300 MMcf/d. Ifthe extension project progresses as planned, offering a new marketfor more than 300 MMcf/d of gas, “I think that might be anopportunity to expand the mainline.”

The mainline rate proposal would provide discounts in varyingamounts depending on the terms of the contracts signed. A 15-yeardeal would cut rates 25 cents/Dth to about 41 cents. It also wouldallow existing customers to extend contracts or negotiate transfersof their capacity to other parties. Most of Kern’s existingcontracts expire in 2007.

“Kern River is taking some risk in doing this because we’repostponing the return of our equity into the outer years, but we’redoing this to try to bring more value to the transportation. Oncewe got that message out and people looked at it they weren’t quiteas scared about extending contracts.”

Rocco Canonica

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