NGI The Weekly Gas Market Report
A new merchant natural gas storage project in a depleted gasfield about 35 miles northeast of Denver has obtained all of itsstate approvals, and its backers anticipate construction startingearly next year with initial start-up to begin in the fourthquarter of next year.
The Totem Gas Storage project initially will have about 9 Bcfworking capacity in the “J” sand gas reservoir in Adams County.Estimated costs range from $30 to $45 million, depending on whethera 21-mile, 16-inch diameter pipeline is required to run northwestto a Public Service of Colorado transmission pipeline, according tothe project’s sponsors.
Backers are looking for customers right now, and they have nosigned contracts yet, according to Mike Wright, one of theprincipals in the project which is being led by Dallas-based BrantEnergy. Final tariffs for the proposed facility were filed lastweek with Colorado regulators.
The Totem project is located on part of a depleted gasproduction field and has two major transmission pipelinestraversing the general area, but by far the closest is ColoradoInterstate Gas Pipeline (CIG), which has the option beforeconstruction to take a 37% interest in the project. CIG opposed thestorage project, and the Totem backers have had to reach astate-approved settlement with the pipeline. CIG’s pipeline runsimmediately adjacent to the proposed storage site on its northwestside, and the proposed 21-mile pipeline would first cross CIG’sline before heading another 20 miles northwest.
“I don’t know whether they [CIG] will exercise their option ornot,” said Wright. “They’ll have to pay their proportional share ofall the costs. I don’t know what will happen because they aresupposed 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 incourt to have that overturned. I could see we were going have lotof problems. So we’re glad we were able to work out a deal withthem.”
One of the other principals in the Totem deal speculated that ElPaso will want the interest in the storage field to complement theadded storage it is getting from ANR, which this source thinks willmake El Paso one of the nation’s largest gas storage operators.
Besides Brant Energy, the other partners include Thermo EcotekCorp. of Waltham, MA; Renegade Oil & Gas of Aurora, CO; whichoperates of the depleted gas field; and Fairchild & Wells ofHouston, which will be the reservoir engineers.
With the advent of about 2,000 MW of new gas-fired electricitygeneration scheduled to come online in the area, the backers arebetting a storage field with maximum delivery capacity andmarket-based rates will draw customers from among marketers,utilities, energy service providers and large industrial customersamong others.
Totem Storage has obtained its okay from Colorado regulators formarket-based rates with a cap. Wright said the cap would never bereached because it is above what the storage market would bear. Itis essentially $1.11/Mcf on an annual basis, prorated monthly. Themarket-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 mayprovide their own cushion gas, which would lower their charges.
“This gave Colorado regulators a lot of heartburn because theyhave never done anything other than cost-based rates,” Wright said.”After lengthy negotiation with the staff, we got the rates wewanted along with a cap. We got the cap set high enough that youcouldn’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, highdeliverability, such as balancing, supply security, intra-weekbalancing, intra-day swing services and parking.”
One of Wright’s partners, Geoff Mitchell, a long-time developerof independent gas storage projects throughout the U.S. and Canada,said Denver is a “hot area” for projects because of thegeographical restrictions on getting power in and out of the RockyMountain region.
“They are very constrained against getting much power fromoutside,” he said, noting that the long list of proposed new powerprojects is attempting to address continuing high electric growth.
The area also is unique in having two peak power seasons — onein the winter and one in the summer, according to Wright. He ishopeful the proposed Totem project can fully cycle twice each year,as opposed to the traditional once-a-year, winter/spring withdrawaland summer/early fall injection.
Richard Nemec, Los Angeles
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