Recent announcements by Dow Chemical Co. and others to expand chemical facilities on advantageous shale gas supplies give new impetus to El Paso Corp.’s proposed pipeline from the Marcellus Shale to the Gulf Coast, CEO Doug Foshee said Thursday.

Dow last month launched a plan to increase ethylene and propylene production on the Gulf Coast (see NGI, April 25), while Westlake Chemical Corp. said it wanted to expand ethylene crackers in Louisiana. Chevron Phillips Chemical Co. LP also is evaluating plans to site a “world-class” ethane cracker and ethylene derivatives facility in the region (see Shale Daily, March 29).

If the Gulf Coast remains the target for expansion, it bodes well for El Paso’s proposed Marcellus Ethane Pipeline System (MEPS), said Foshee.

“We are encouraged by the recent announcements…on an estimated additional demand of over 250,000 b/d of ethane,” Foshee told financial analysts during a conference call. “The Gulf Coast will continue to be the demand center.”

El Paso Midstream Group Inc. last summer held a nonbinding open season for MEPS, which is designed to transport up to 60,000 b/d of ethane to third-party ethane pipelines and storage facilities in the Baton Rouge, LA, area (see Daily GPI, Aug. 10, 2010). Because ethane offtake has become a challenge in the Marcellus, several other proposals were put on the table or were being explored last year (see NGI, Sept. 13, 2010).

“The MEPS process to move from the Marcellus is continuing, and we will work with customers to get over the finish line,” said Foshee.

El Paso also expects to complete five pipeline expansions this year, said Jim Yardley, who helms the pipeline segment.

“We have a big slate of expansions this year,” he told analysts. The first was Florida Gas Transmission Phase VIII, which ramped up April 1 to provide an additional 800 MMcf/d into Florida markets; the expansion increased throughput into the state by more than one-third.

“Next is the second phase of SNG [Phase II of South System II expansion] for Southern Company, which is scheduled to be in service June 1 on time and likely under budget.” The expansion will serve a converted coal plant with 120 MW of capacity.

Ruby Pipeline, which will carry gas from the Rockies to West Coast markets, is “nearly 90% welded out, with about 80 miles left to complete, all on the western end of the route…half in Nevada and half in Oregon,” said Yardley. The pipeline crew is waiting out sage grouse mating season, which ends May 15, to begin on restricted areas, and wet weather in Oregon slowed progress in April. “In the interim we completed most of the critical stream crossings, which is a significant accomplishment.”

Ruby, said Yardley, “is very nearly complete. We will begin to purge and pack in May…The compressor stations are 90% complete and commissioning is well under way at Opal…The finish line is in sight.” The scheduled ramp up, which has been revised several times, is in July.

El Paso also expects to finish by year’s end an expansion at Gulf LNG, and the TGP [Tennessee Gas Pipeline] 300 line in western New Jersey.

“By the end of the year essentially all of the original $8 billion backlog will be complete,” said Yardley.

The TGP system, which serves the Northeast, “continues to benefit from Marcellus production, and is now at 1.3 Bcf/d…up from half a B at this time last year…Nearly two-thirds of Pennsylvania Marcellus [production] is flowing into TGP.” Another 1 Bcf/d of expansion is under way to “keep up with Marcellus production growth.”

Yardley also cited “another trend” that the pipeline group has seen: “despite more ‘normal’ weather, power generation loads are up” more than 10% on the SNG pipeline system, continuing “a trend we’ve seen in the last couple of years.”

El Paso Natural Gas Co. (EPNG), which pipes natural gas to western markets, also has secured two agreements to expand service into Mexico for growing power generation projects, Yardley said. Two long-term agreements would supply gas to two facilities in the state of Sonora.

“We and most consultants expect gas exports to double over the next several years as Mexico turns to natural gas power generation,” said Yardley. “EPNG is particularly well positioned for this business…Now it’s the most challenged, but we see tangible signs of improvement long term.”

The two agreements “are the first of many that may serve Mexico.” They also indicate an improving economy. “Importantly, we are seeing signs of increased throughput in the Southwest and signs of an economic recovery there.”

One of EPNG’s agreements, with MGI Supply Ltd., a subsidiary of Petroleos Mexicanos’ Pemex Gas, is to expand the Willcox lateral and provide 95,000 Dth/d of gas transportation. The second agreement is to supply 90,000 Dth/d to Mexicana de Cobre S.A. de C.V., a subsidiary of Grupo Mexico, Mexico’s largest mining company and one of the world’s largest copper producers.

The first open season had offered up to 200,000 Dth/d of existing capacity held by EPNG on its south mainline, extending from the Waha Hub in West Texas to EPNG’s Willcox compressor station in Cochise County, AZ. The second offered 185,000 Dth/d of proposed additional capacity from the Willcox station to two delivery points, also in Cochise County, at the U.S.-Mexico border.

Expansion of the Willcox lateral, anchored by 15-year contractual commitments, would use existing facilities at the Willcox compressor station after some pipe and compression modifications are undertaken. The project, estimated to cost about $18 million, is expected to generate more than $30 million of annual revenues when fully in service. Pending Federal Energy Regulatory Commission approval, the project is scheduled to be in service by April 1, 2013.

The exploration and production (E&P) segment reported quarterly production volumes rose 5% year/year to 821 MMcfe/d, with an 18% jump in oil and condensate production. Results from the Eagle Ford Shale and initial results from the Wolfcamp Shale are proving to be above expectations, said E&P chief Brent Smolik.

El Paso’s profits in the first three months of this year dropped 84% to $62 million (8 cents/share) from $388 million (51 cents) a year ago. Excluding one-time items earnings fell to 30 cents/share, which exceeded Wall Street’s consensus estimate by 2 cents.

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