Officials at Colorado Interstate Gas (CIG) are expecting extremely depressed gas prices and wide basis differentials in the Rocky Mountain region this year to provide enough of an incentive for producers to finally step up to the plate and support an eastern greenfield pipeline project, and possibly the switching of Wyoming Interstate to westbound flow to support demand from Kern River shippers at the Opal hub.

In the meantime, however, CIG is holding an open season on a proposed expansion of its existing system from the DJ Basin near Denver to Williams Hugoton Station in Grant County, KS, where there has been a sharp decline in available supply due to steep wellhead decline rates in the Hugoton Basin. The DJ Basin expansion involves some available capacity on CIG’s existing system, as well as some additional horsepower, pipeline looping and a small extension.

“The Hugoton Field has dropped off over the past few years, so there is some demand to backfill production at the interconnection with Williams,” said CIG’s Craig Coombs, director of project development. “We can expand our system incrementally, albeit through a lot of compression. It’s at the tail end of what we can do economically. It’s a very finite expansion plan that will test the interest of shippers to go from DJ Basin to Williams.” He said CIG is planning to add 100 MMcf/d. “Once you start getting much above 100 MMcf/d, it gets very expensive.”

CIG officials also hope to relaunch the 540 MMcf/d Cheyenne Plains pipeline project, formerly called Coastal Connect, a 400-mile pipeline extending from the Cheyenne Hub in northern Colorado through CIG’s market area storage fields to the interconnection of several Midcontinent pipelines with 6 Bcf/d of takeaway capacity near Greensburg, KS. Kinder Morgan recently launched an open season for its own eastbound expansion out of the Cheyenne Hub. Its 411-mile Advantage pipeline, which would utilize portion’s of Kinder Morgan’s existing system and Pony Express line, would provide Rockies producers access the markets as far away as Kansas City (see Daily GPI, Aug. 8)

CIG already has had two open seasons on the Cheyenne Plains project. The last one was in July 2001. Williams followed in CIG’s footsteps with a project of its own called Western Frontier, which eventually was shelved because of the company’s credit and financial crisis (see Daily GPI, Aug. 5). Both Western Frontier and Cheyenne Plains were designed to bring gas from the Cheyenne Hub to pipeline interconnections in the Midcontinent region.

“We are actively pushing Cheyenne Plains,” said Coombs. “We have an anchor tenant for 175,000 Dth/d under a long-term contract. We’re anticipating getting 540,000 Dth/d to make this work at the rates we proposed. It’s a grass roots pipeline from Cheyenne to Greensburg, KS. Our goal is to try to get this project contracted before the end of the year, and then file in April 2003 with an in-service date of July 2005, about a year later than originally expected.”

According to Coombs the biggest factor delaying construction of a much needed eastbound pipeline out of the Rockies has been the unwillingness of producers to step up and become large capacity holders. “I think the difference between today and a year ago is that the basis is just much more exaggerated; it’s much bigger and it’s not going to get any better, we don’t think, in the long run,” he said.

“We know Kern River’s [2003 expansion] is going to be constructed, but we think we are going to need another expansion, particularly going east almost immediately after Kern is put in service,” he said. “We just have a lot of activity in the Rockies. It’s a major basin that is going to replace the Hugoton and parts of the Gulf, and because of this activity, we really need a pipeline to go east. That’s where we think the most promising market is in the long run. It’s a question right now of whether the basis is strong enough to force shippers to say ‘yes, I’m going to step out an be an anchor tenant in this.'”

There may be a growing trend among producers, however, to wait until after Kern’s 900,000 Dth/d expansion goes into service before signing on the dotted line. Many believe Kern will relieve the basis problems (see Daily GPI, July 1). Coombs, however, thinks they are wrong to wait. “If you understand the Rockies and how things will play out, you can see the Kern River expansion will help Opal [prices]. But the east side of the Rockies, which includes Powder River and Cheyenne, isn’t necessarily communicating real well with Opal. There’s limited capacity that goes between the two areas.”

CIG’s Tom Price said Kern River initially may find that there isn’t enough gas at Opal. “We are telling people that we think Kern is going to run short of filling up their pipeline. There’s not enough connectivity in western Wyoming right now; but we haven’t had people standing in line to say they agree and will help with a $70 million project to fix that. We think the supply isn’t the problem; it’s the pipes. There’s just not enough pipe in place. Kern River needs the Wyoming basins to pitch in to fill the pipe.”

The CIG officials said say they’re still open to requests for converting Wyoming Interstate Company (WIC) to flow west to the Opal hub to support the Kern River 2003 expansion project. Eastern Wyoming producers will either have to commit to a westbound project to bring their rising volumes to Opal or sign up for capacity on an eastbound pipeline expansion.

The eastbound project, according to Coombs, is the best bet right now for better netbacks. “There’s $1.50-plus going east. There’s no basis between Cheyenne and Opal. We think there will be when Kern goes in, but there isn’t right now.”

Price said CIG would “love to find some contractual support to spend money to turn Wyoming Interstate around” and reverse flow to Opal. “It’s kind of like Cheyenne Plains; until very recently it’s been lagging with no contractual support. Now there have been a lot more expressions of interest. But we’ve seen a lot more interest in Cheyenne Plains in real terms in the last two weeks than we have in the WIC reversal. We’re marketing both aggressively but we’re not going to build either without contractual support.”

CIG forecasts that there will be enough gas production coming out of the Rockies to support the WIC reversal, Cheyenne Plains and several more pipeline expansions. “We could build between now and 2010 three Cheyenne Plains projects and still not have enough capacity out of the Rockies,” said Coombs, who noted there are six rapidly growing producing basins tied to CIG and WIC: Green River on the west end, which is expected to show continuing increases through the Jonah and Pinedale Anticline plays; the Wind River Basin, which has outperformed its projections; Wamsutter, which is going great guns; Piceance, which has more coalseam gas reserves than the Powder River, but is deeper and more difficult to get at economically; and of course Powder River, which could be at 2 Bcf/d within a couple years if environmental issues, mainly related to water disposal, can be worked out.

“The gas is there,”said Coombs. “We just have to get the right price and we have to get some pipe out of here to get the right price. It is an chicken and the egg problem, but we don’t think there’s a problem as far as production. They just need decent netbacks.”

For more details on CIG’s current open season on the DJ Basin project, which closed Sept. 6, contact Craig Coombs at (719) 520-4387.

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