EnergySouth’s Bay Gas Storage Co. Ltd. inked a 15-year naturalgas storage contract with Southern Company Services Inc. last week,quadrupling the amount of natural gas storage it already providesits parent Southern Co., and giving Southern’s six utilitiessalt-dome storage capacity of up to 3.2 million MMbtu of naturalgas.

Greg Welch, Bay Gas’ marketing director, said the deal grew outof a growth boom in the South, which has lead to a “dramatic surgein development of natural gas-powered electric generating plants”along the U.S. Gulf Coast.

To keep up with demand, Bay Gas is continuing to develop a secondunderground storage cavern at its McIntosh, AL facility, a projectthat began in 1999 (see Daily GPI, July 6,1999). It has retained Banc One Capital Markets Inc. to act asfinancial adviser for financing alternatives for the project, whichwould increase the total working gas capacity from 2.4 Bcf to 6 Bcf.

At an estimated cost of $35 million, Bay Gas plans to constructthe second storage cavern in two phases. In the first phase,scheduled for completion by Dec. 1, 2002, enough capacity would beadded to fulfill the Southern Co. contract, and it would more thandouble the existing gas storage capacity of Bay Gas. In Phase Two,Bay Gas plans to expand the cavern to more than 3.5 million MMbtuof working capacity.

The facilities will have direct connections to Florida GasTransmission, Koch Gateway Pipeline and Mobile Gas Service Corp.

Bay Gas’s strategic position has never looked better, saysmanagement. “We’re at the crossroads between the increased naturalgas production coming onshore in the central Gulf Coast, and thegrowing market for that gas in the Southeastern United States,”said John Davis, CEO of Mobile, AL’s EnergySouth.

When EnergySouth announced its second-quarter earnings on July28, it reported that increased revenues from Bay Gas produced the”greatest positive impact on earnings” for the quarter, and theprevious three quarters. The increase, said management, wasdirectly related to its long-term storage contract with Southern,which took effect April 1, 1999.

Bay Gas also benefited from an increase in transportationrevenues, including gas transportation to Alabama Power, whichbegan operations at its two new gas powered generating units atPlant Barry on June 1. Bay Gas also is contracted to provide firmtransportation services to additional Alabama Power units, whichare expected to be completed by next summer.

EnergySouth owns 87.5% of Bay Gas, with Olin Corp. owning theremainder. EnergySouth is the holding company for several energycompanies besides Bay Gas, including Mobile Gas Services Corp.,EnergySouth Services Inc. and MGS Marketing Inc.

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