El Paso Natural Gas has given up on its first attempt tode-bottleneck the constrained Bondad System in the San Juan Basin(see Daily GPI, Oct. 19), but is approaching FERC again in hopesthat a second try will be more fruitful in adding capacity to apoint that some gas traders sarcastically call “Bondage.”
Enron Capital & Trade Resources, which took most (100 MMcf/d)of a proposed 116.5 MMcf/d expansion of Bondad capacity in an openseason last year, exercised its option Nov. 18 to back out of anexpansion service agreement with El Paso. ECT said it based theaction on FERC’s Aug. 31 order approving the expansion projectbecause the commission “substantially altered the proposed ratedesign, cost allocation and tariff revisions.” Following the order,ECT and El Paso were unsuccessful in talks to reach a mutuallyacceptable approach on going forward with the project, according toa letter terminating the agreement by Colleen Sullivan, ECTmanaging director.
El Paso’s original filing sought to treat the expansion space asa block separate from Bondad’s existing capacity of 567.7 MMcf/d.That would have allowed the three expansion shippers (besides ECT,Elm Ridge Resources and Conoco divided up the remaining volume) touse all of their contracted service rights when they needed them,but any unused expansion space was to be allocated to other firmBondad shippers.
However, FERC rejected the separate allocation and told El Pasoto use rolled-in rates for the expansion capacity instead ofincremental ones. That meant whenever future Bondad nominationsexceeded capacity, the pipeline would have to allocate bothexisting and expansion capacity on a prorata basis among all firmshippers, President Richard Baish told Daily GPI back in October.Thus the expansion shippers would be denied some of the extra spacethat they alone would be paying for, he added.
Last week El Paso filed a letter by Baish informing FERC ofECT’s decision, which effectively killed the expansion project asit then stood, and asking the commission “to act expeditiously onour request for rehearing” of the Aug. 31 order, said Al Clark, thepipeline’s vice president of marketing. According to the letter,”The Enron termination evidences the market’s unwillingness tosubscribe to expansion capacity which can be pre-empted for thebenefit of El Paso’s existing system shippers during periods ofcapacity constraint.”
Assuming El Paso gets a favorable rehearing, it will try foranother open season to resell that capacity, Clark said Wednesday.”But the only way we can do it is to establish that people who buythe expansion space would get first dibs on it. Otherwise it won’tget built.”
It’s tough to say whether Enron Capital & Trade would againseek a large chunk of expanded Bondad capacity if El Paso is ableto offer it without the adverse FERC conditions, said Mark Palmer,the former ECT vice president of public relations who was recentlypromoted to vice president of Enron Corp. “You’ve got to take alook at market conditions and see if it makes economic sense.”Conditions have changed considerably in the year-plus since ECTagreed to become the expansion’s anchor shipper, Palmer said, so hefound it “impossible to speculate at this time” on future strategy.
Roger Tanner, Houston
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