Will the South Atlantic region be the next ‘California 1992’ or ‘California 2000?’ That’s the question Arlington, VA-based consulting firm Energy and Environmental Analysis Inc.(EEA) asked in its July Monthly Gas Update because of all the pipeline expansions planned for the region and the current financial turmoil affecting the companies who are behind the new projects.

The market regions targeted with the most pipeline expansions in the near term — in order of planned capacity — are the South Atlantic, the Northeast, California and Florida. More than 4.7 Bcf/d of new transmission capacity is planned for construction in the South Atlantic over the next four years.

The group said that the primary need for more gas transmission is to keep up with newly built gas-fired power generation plants. Even with an unstable economy, EEA said gas demand in the power generation sector is still on track for record growth this year. Hot weather in the West and Southwest boosted demand early this summer, which helped push EEA’s 2002 forecast up another 100 Bcf compared to last month. EEA’s new projection for 2002 demand is 5 Tcf. The groups current August forecast has demand peaking at almost 19 Bcf/d for the month. However, if warmer-than-normal temperatures strike, August demand could rise to 22 Bcf/d.

Despite the heat, EEA reiterated that California’s power market is “no longer in crisis — at least for this year,” due to a combination of increased imports, new in-state gas-fired plants, and peak shaving.. Despite the recent heat wave, the power market remained liquid and there were no serious power outages. New York City has also been having a trouble-free summer so far, though reserve margins in August will likely be very low.

Projected demand growth resulting primarily from new gas-fired power generation in Georgia, the Carolinas and Virginia is driving the transmission capacity additions. About 376 MMcf/d of new capacity already is in service through Transcontinental Gas Pipe Line (Transco) and Southern Natural Gas (Sonat). During May, Transco placed into service its 236 MMcf/d Sundance expansion, while Sonat in June said it was placing into service the first of three expansion projects, adding 140 MMcf/d of firm transmission capacity on its system. Sonat’s second phase is expected to add another 196 MMcf/d by June 2003.

EEA said total capacity expansion will be significant in 2003 and 2004, at 1.4 Bcf/d and 2 Bcf/d, respectively. An additional 800 MMcf/d of new capacity has been proposed for 2005. EEA believes the most notable projects taking part in this race are:

The Northeast also has a significant amount of new transmission capacity proposed or on its way to supply the highly seasonal demand market. EEA added that parts of the Northeast have experienced basis blowouts during the winter months in recent history as some markets lack adequate transmission capacity to meet seasonal load. According to EEA, about 4.5 Bcf/d of additional transmission capacity is planned for the region between now and 2006. The breakdown shows approximately 1.2 Bcf/d by the end of this year, 1.7 Bcf/d in 2003, 650 MMcf/d for 2004 and 1 Bcf/d for 2006.

“While some of the projects are still struggling with regulatory approvals — such as the Millennium Pipeline project that is slated to bring gas from Dawn, Ontario — other projects are making headway,” EEA said in its update. “Major projects that are in good shape for completion by the end of 2002 include: The Maritimes & Northeast (M&N) compression addition and Phase III, the HubLine project, Market Link Phase II, and Tennessee’s Dracut Expansion.”

And in Florida, much needed new transmission capacity began making its way to the state this year in order to serve continuing substantial gas-fired power generation growth. The 1.1 Bcf/d Gulfstream pipeline began deliveries in June, putting an end to a 40-year monopoly by Florida Gas Transmission (FGT). EEA pointed out that while the full capacity of the pipe is not yet available to its intended market, it will increase its utilization over the next few years as new gas-fired power plants come online.

About 395 MMcf/d of additional transmission capacity is planned for 2003 between an FGT expansion and the Cypress pipeline, which will bring gas from the Elba Island LNG import terminal gas into Jacksonville, FL. FGT’s Phase V Expansion project went into service in April, providing an additional 306 MMcf/d to the state. In total, the Phase V and VI expansion projects will expand the FGT system to more than 2 Bcf/d by late 2003.

EEA said the California market has already started receiving a good chunk of the 3.2 Bcf/d of new transmission capacity planned for the state. A total of 410 MMcf/d of this capacity is expected to be in service by the end of 2002, with another 1.8 Bcf/d planned for 2003, and 780 MMcf/d for 2004. “The capacity shortfall seen in 2000-2001 has led to a pipeline capacity rush to ensure that the ‘gastronomical’ price levels that the market had seen over most of that period do not return,” EEA commented.

Questar’s Southern Trails Pipeline placed into service its eastern leg connecting Rockies gas to the California border but ran into a snag with its intrastate western leg, which is being held up by California regulators over compliance issues, EEA noted. Transwestern also placed into service its 120 MMcf/d Red Rock expansion and claims it’s moving ahead with the Sun Devil expansion, which has so far received requests for more than 1.3 Bcf/d of capacity. For 2003, Kern River is well on its way to doubling its capacity into California, while CIG’s Ruby Pipeline remains in the planning stage. Kern received final approval from FERC earlier this month for its massive 2003 expansion, which will double its capacity.

Aimed at improving takeaway capacity from the border, SoCal Gas has completed three of four system expansions scheduled for completion this year. Collectively, the expansions will boost SoCal’s system by 11%, or 375 MMcf/d. From the north, EEA said intrastate capacity is expected to improve with expansions on PG&E’s system. PG&E recently completed a 200 MMcf/d expansion of capacity on its system to serve power generators in California and the Pacific Northwest. Later this year, PG&E is expected to finish a comparable 200 MMcf/d expansion on its Redwood Path, which runs from Malin, OR at the California border to San Jose, CA. In addition, PG&E is eyeing another expansion of about 150 MMcf/d for 2003.

The proposed pipeline projects that actually reach the construction phase will be those that make it through a difficult obstacle course of competition, market instability, regulatory hurdles and firm contract negotiations, EEA noted. Many will suffer the fate of the Sonoran Pipeline project, which had been slated to bring 1.5 Bcf/d into the California market by 2004. Sponsors Kinder Morgan and Calpine Corp. said they cancelled the project because they were unable to secure sufficient binding commitments.

“Other projects may fold due to changing market conditions and/or difficulty securing approval from regulators,” EEA said. “Still others could be cancelled as a result of the ‘capital crunch’ currently facing the energy markets. [Williams’ Western Frontier expansion was one such casualty] Regardless, the future has many uncertainties for those planning new pipelines, and that potentially leads to many problems ahead for gas consumers and producers.”

For more information on Energy and Environmental Analysis Inc.’s July Monthly Gas Update, contact Firas Barazi at (703) 528-1900 or fbarazi@eea-inc.com.

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