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DEGT Plans Expansion of East Tennessee System

DEGT Plans Expansion of East Tennessee System

In the second announcement this month about expanding pipeline capacity for the growing and hungry gas-fired power generation market in the Southeast and Mid-Atlantic regions, Duke Energy Gas Transmission said it plans to extend its East Tennessee Natural Gas System with a 95-mile extension from Virginia into North Carolina.

The 24-inch pipeline, which would be completed in 2002, would be coupled with DEGT's East Tennessee system mainline enhancements to initially transport 200 MMcf/d of natural gas beginning in the fall of 2002. The extension would be expandable, in increments, to 600 MMcf/d.

Earlier this month, Dominion Transmission unveiled plans to build a new pipeline to serve portions of the same region (see NGI, Oct. 9), which would serve new power plants in Virginia and North Carolina beginning in 2005. There was no reaction about DEGT's competitive proposal.

DEGT's Patriot extension would bring natural gas service to portions of southwest Virginia for the first time, and introduce a competitive supply of natural gas to North Carolina from Appalachian and Gulf Coast producers.

The extension would be the centerpiece of a $215 million project by Duke Energy's Houston-based division, which is responsible for the company's interstate natural gas pipeline operations. Originating in the East Tennessee system in Wythe County, VA, the Patriot extension would cross Carroll, Patrick and Henry counties in Virginia, then terminate in Rockingham County, NC.

According to Duke, the Patriot Extension would help meet the annual 4% natural gas growth in the region currently being driven by strong demand for natural gas-fired electric generation.

"Our discussions with potential Virginia and North Carolina customers showed a strong need for additional natural gas supplies, supply diversity, transportation and competition in the region," said DEGT President Robert B. Evans. DEGT is building new relationships with storage providers and local producers who would provide "significantly increased natural gas supplies" into the East Tennessee system from the Appalachian area, Evans said.

"While most of the Appalachian production has traditionally gone to the Northeast, local producers now are seeing value in the southeast market and are planning infrastructure additions accordingly," he said. "This enhanced supply and extended market reach strategy was contemplated when we purchased East Tennessee less than a year ago." The purchase was announced in mid-1999 (see NGI, July 26, 1999).

Dominion's Greenbrier Pipeline project also targets the mid-Atlantic region. Its greenfield pipeline would transport up to 600,000 Dth/d of Appalachian, Canadian and Gulf Coast gas production to the region. It would extend about 200 miles from Dominion's Cornwell Station near Charleston, WV, connecting with the Transcontinental Gas Pipe Line in Rockingham, NC.

Whether FERC would give the go-ahead to both projects is questionable, but DEGT's Tom O'Connor, senior vice president for marketing, said that there are significant differences between the two proposals, which would give Duke Energy the edge.

Citing the "supply diversity" that DEGT is proposing, O'Connor said that the expansion would bring supplies from the Gulf Coast through the Appalachian region into the Carolina markets. He also said that the size of DEGT's expansion was better suited to the area.

"This is the right size of capacity to enter the market," said O'Connor, citing DEGT's proposed initial capacity of 200 MMcf/d versus Dominion's proposed 600,000 Dth/d. DEGT's pipeline expansion also would be completed nearly three years before Dominion's, according to the proposals. Dominion's proposal calls for initial service to begin in 2005, but O'Connor said that DEGT's expansion would be completed and ready in 2002.

"We have several favorable differences, and Duke Energy's credibility brings something to the table, too," O'Connor said. "This project is consistent with the growth that we planned when we bought the East Tennessee system, and we knew that going in."

DEGT purchased the East Tennessee pipeline system from El Paso Energy for $386.3 million in stock in January, extending the reach of its 9,220-mile Texas Eastern Transmission Corp. (Tetco) pipeline. O'Connor said the long-term plan was always to expand the East Tennessee mainline between the Patriot extension and Tetco to give Patriot extension customers an additional natural gas supply option.

DEGT's Evans said that the extension would "result in a 30% increase in East Tennessee's peak-day delivery capability by 2002."

Formal shipper meetings are scheduled by DEGT in the next two months, concluding with a binding open season for capacity in the Patriot extension. Following the open season, DEGT would make its filing with the Federal Energy Regulatory Commission by the end of the first quarter 2001.

East Tennessee Natural Gas owns and operates two mainline systems in central Tennessee that converge near Knoxville and extend to a point near Roanoke, VA. The system has a current design capacity of more than 700 MMcf/d and provides services to 40 local distribution companies and 16 industrial companies in the region.

DEGT manages 12,000 miles of natural gas pipelines, including East Tennessee, Tetco, Algonquin Gas Transmission, and with other partners, Maritimes & Northeast Pipeline.`

Carolyn Davis, Houston

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