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Colorado's First Merchant Storage Field Moves Toward Construction

Colorado's First Merchant Storage Field Moves Toward Construction

A new merchant natural gas storage project in a depleted gas field about 35 miles northeast of Denver has obtained all of its state approvals, and its backers anticipate construction starting early next year with initial start-up to begin in the fourth quarter of next year.

The Totem Gas Storage project initially will have about 9 Bcf working capacity in the "J" sand gas reservoir in Adams County. Estimated costs range from $30 to $45 million, depending on whether a 21-mile, 16-inch diameter pipeline is required to run northwest to a Public Service of Colorado transmission pipeline, according to the project's sponsors.

Backers are looking for customers right now, and they have no signed contracts yet, according to Mike Wright, one of the principals in the project which is being led by Dallas-based Brant Energy. Final tariffs for the proposed facility were filed last week with Colorado regulators.

The Totem project is located on part of a depleted gas production field and has two major transmission pipelines traversing the general area, but by far the closest is Colorado Interstate Gas Pipeline (CIG), which has the option before construction to take a 37% interest in the project. CIG opposed the storage project, and the Totem backers have had to reach a state-approved settlement with the pipeline. CIG's pipeline runs immediately adjacent to the proposed storage site on its northwest side, and the proposed 21-mile pipeline would first cross CIG's line before heading another 20 miles northwest.

"I don't know whether they [CIG] will exercise their option or not," said Wright. "They'll have to pay their proportional share of all the costs. I don't know what will happen because they are supposed to be merged with El Paso." CIG is part of Coastal Corp., which is merging with El Paso Energy.

"We felt like they could have tied us up and fought us. In fact, when the state land board issued us a land lease, CIG filed in court to have that overturned. I could see we were going have lot of problems. So we're glad we were able to work out a deal with them."

One of the other principals in the Totem deal speculated that El Paso will want the interest in the storage field to complement the added storage it is getting from ANR, which this source thinks will make El Paso one of the nation's largest gas storage operators.

Besides Brant Energy, the other partners include Thermo Ecotek Corp. of Waltham, MA; Renegade Oil & Gas of Aurora, CO; which operates of the depleted gas field; and Fairchild & Wells of Houston, which will be the reservoir engineers.

With the advent of about 2,000 MW of new gas-fired electricity generation scheduled to come online in the area, the backers are betting a storage field with maximum delivery capacity and market-based rates will draw customers from among marketers, utilities, energy service providers and large industrial customers among others.

Totem Storage has obtained its okay from Colorado regulators for market-based rates with a cap. Wright said the cap would never be reached because it is above what the storage market would bear. It is essentially $1.11/Mcf on an annual basis, prorated monthly. The market-based rates would be in the range of 80 to 90 cents/Mcf, with a 2 cents/Mcf fee for cycling, Wright said. Some customers may provide their own cushion gas, which would lower their charges.

"This gave Colorado regulators a lot of heartburn because they have never done anything other than cost-based rates," Wright said. "After lengthy negotiation with the staff, we got the rates we wanted along with a cap. We got the cap set high enough that you couldn't sell storage at that level.

"We feel pretty comfortable we are going to market our products (including standard firm storage; and supplemental short-term, high deliverability, such as balancing, supply security, intra-week balancing, intra-day swing services and parking."

One of Wright's partners, Geoff Mitchell, a long-time developer of independent gas storage projects throughout the U.S. and Canada, said Denver is a "hot area" for projects because of the geographical restrictions on getting power in and out of the Rocky Mountain region.

"They are very constrained against getting much power from outside," he said, noting that the long list of proposed new power projects is attempting to address continuing high electric growth.

The area also is unique in having two peak power seasons --- one in the winter and one in the summer, according to Wright. He is hopeful the proposed Totem project can fully cycle twice each year, as opposed to the traditional once-a-year, winter/spring withdrawal and summer/early fall injection.

Richard Nemec, Los Angeles

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