Even though natural gas-fired electric generation is being spread around the West more than ever, California remains a key market for the expected five-fold increase in daily Rocky Mountain supplies over the next five to seven years, a Houston-based consultant told an energy conference Thursday in Santa Fe, NM.
People should not be fooled by the “head fake” being put on by the upper Midwest and the current plans to ship added Rockies’ supplies east to Chicago, said Greg Hopper, a vice president and principal with The Lukens Energy Group, speaking at the first day of a two-day Law Seminars International conference, “Energy in the Southwest.”
“As we start to get new sources of energy through various points such as North Baja, Los Angeles, the Rockies, and the Gulf of Mexico, we need to understand how each of these points impact capacity allocations,” Hopper said. “Even though there is a lot of growth elsewhere, there is also a lot of growth in California. The only question is the timing; when it is going to happen.”
If all the wells permitted are drilled and the pipelines needed to take it away are in place, Rocky Mountain production could grow from 2 Bcf/d to 10 Bcf/d over the next five to seven years,” Hopper said.
“Right now the numbers show the (natural gas transmission pipeline) grid is absolutely full trying to get out of Colorado,” he said. “If we want more gas out of the Rockies, we have to build more new pipelines out of the Rockies, and that means compromising and reaching agreement with environmentalists.
“On the other hand, the existing pipelines coming to California from West Texas have plenty of excess capacity, which is good news for New Mexico,” he said.
“There has been a head fake going on in the market and it’s interesting to see how folks have reacted. Traditionally, the ‘Chicago Market’ (upper Midwest) has been long on capacity as a result of the rust belt industry’s demise over the past 25 years. This caused prices to deteriorate, and the Chicago market has really been a ‘wasteland’ market.
“So, for the better part of two decades there have been no major new pipelines initiatives to Chicago. Nevertheless, right now, the single largest pipeline coming out of the Rockies would take it to the Chicago market.”
As a result, the California gas market has now dropped below the Chicago market in terms of prices, Hopper said.
“We think this is a temporary position, however, and in fact, the situation is going to reverse and return to the traditional premium for the Southern California market,” Hopper said.
Even with all the talk about other markets for Rocky Mountain gas, “at the end of the day, the natural market for that gas is Southern California, and maybe a little in northern California,” he said.
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