It was not a good week for El Paso gas pipeline projects. Two major pipeline proposals, the 850 MMcf/d Continental Connector project, which originally was considered a competitor to the Rockies Express Pipeline, and the 1 Bcf/d Seafarer US Pipeline System Inc., which would have delivered regasified LNG to the Florida peninsula, were shelved indefinitely.
El Paso CFO Mark Leland told the Deutsche Bank High Yield Conference Wednesday that Continental Connector is “unlikely to move forward” because Barnett Shale producers opted to send their production to market on a competing pipeline system.
Rockies producers were not even mentioned. Most western producers apparently chose Rockies Express over Continental Connector early on in the El Paso project’s evolution.
El Paso launched Continental Connector in fall of 2005 as a $1-2 billion, 1-2 Bcf/d pipeline system that would link its Rocky Mountain region pipelines — Wyoming Interstate, Colorado Interstate Gas and Cheyenne Plains — with its eastern pipelines — ANR, Tennessee Gas and Southern Natural. The project was designed initially to span about 1,000 miles with 42-inch diameter pipe, delivering Rocky Mountain production as well as supply from the Midcontinent and North and East Texas to eastern and midwestern markets (see NGI, Oct. 10, 2005).
In November 2005, Enogex signed a letter of intent to take 500,000 Dth/d of capacity on the proposed system and planned to lease 750,000 Dth/d of capacity on its own Oklahoma pipelines to El Paso as part of Continental Connector (see NGI, Nov. 7, 2005). The plan was expected to eliminate the need to build about 180 miles of greenfield pipe.
Following an open season last fall, El Paso announced that it received expressions of interest from potential shippers for 3 Bcf/d of capacity on the proposed system (see NGI, Dec. 5, 2005). However, by spring it became clear that the project would take a different shape than originally anticipated (see NGI, April 24). Rockies producers had signed up for space on the competing 1.8 Bcf/d Rockies Express system, sponsored by Kinder Morgan, Sempra and ConocoPhillios. And more interest in the El Paso project was expected to come from producers in the Midcontinent and the Barnett Shale in Texas. El Paso ended up with a project that would have included only about 300 miles of greenfield construction mainly in Arkansas, Texas and Louisiana.
In the meantime, numerous other projects were sprouting up one after the other to tap the Barnett Shale’s growing supply and bring it to the Perryville Hub in Louisiana. Last week, the Federal Energy Regulatory Commission approved CenterPoint Energy Gas Transmission’s plan to deliver 1.24 Bcf/d of gas from Texas to Perryville (see related story). Other projects have been planned by Gulf South, Texas Gas, Crosstex, Energy Transfer and Kinder Morgan.
In addition, Duke Energy teamed up with CenterPoint in the summer to propose the Midcontinent Connector, which would deliver 1.75 Bcf/d of gas from Texas and Oklahoma to Pittsburgh, PA (see NGI, June 5). With all the competition, El Paso ended up without the commitments required to move forward on Continental Connector.
Leland told analysts the company does not see any financial impact on its earnings growth forecast of 4-6%. He also noted that El Paso has numerous other pipeline plans under development.
However, Credit Suisse analyst Carl Kirst lowered his target price on the company’s stock 6% because of the announcement. He said the project would have contributed 75 cents/share to the company’s earnings.
“Given the intense regional competition we had not subscribed to the potential $1-2 billion overarching project, but we did think a scaled down $750 million project was feasible given EP’s first-mover advantage relative to four other Midcontinent proposals,” Kirst said.
The Bahamas pipeline, Seafarer US Pipeline System Inc., has been in doubt for some time because of the lengthy political delay over the LNG import projects in the Bahamas. Although there have been several recent indications of progress no final authorizations have been issued.
Seafarer was expected to ship gas from an LNG terminal in Freeport on Grand Bahama after Suez Energy and El Paso agreed to use the best components of their two separate LNG and pipeline proposals to form one LNG and pipeline project. However, because of the political stalemate over LNG in the Bahamas, Suez chose to go with an LNG deepwater port offshore Florida in the short term. Although the onshore terminals in the Bahamas, including one proposed by AES Corp., still may eventually be developed, El Paso told the Federal Energy Regulatory Commission last week that it was withdrawing its application for Seafarer.
“Because supplies of LNG have not been committed and conditions for developing LNG infrastructure in the Bahamas remain uncertain, Seafarer cannot now make the substantial commitment to perform the site-specific geotechnical surveys” that are required by a FERC letter order issued on Sept. 21, an attorney for El Paso said in a Sept. 29th letter to the agency.
“Withdrawal of the application will relieve Commission staff, the interagency team and participants of further regulatory burden…We will keep the Office of Energy Projects informed of plans to reapply when conditions improve,” he said.
El Paso originally filed its application for the $226 million Seafarer pipeline project in November 2004 (see NGI, Nov. 22, 2004). The Seafarer project hinged on the development and construction of an 87-mile international pipe segment from the proposed High Rock LNG regasification terminal in the Bahamas to the United States-Bahamas Exclusive Economic Zone (EEZ) in the Atlantic Ocean. The Seafarer line was to connect with the Bahamas pipeline at the EEZ international boundary and extend to an onshore interconnect with Florida Gas Transmission system in South Florida, where it would deliver 1 Bcf/d.
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