El Paso Corp.’s natural gas pipeline franchise is expected to be front and center in building new infrastructure to accommodate growing North American gas demand in the coming decades, executives said last week.

The company unveiled plans to spin off the exploration and production unit by the end of the year during an investor conference (see related story). Executives also offered company strategies for the short and the long terms.

“The natural gas pipelines going forward are clearly the core of El Paso Corp.,” Jim Yardley, who helms the unit, told analysts. “They provide for economies and efficiencies of scale and balance…and the best platform for future business.”

At twice the size of its competitors — financially, throughput or miles — the pipeline franchise also happens to cross through some of the most substantial supply basins and in the “best markets,” said Yardley.

“Market side,” the pipe unit has systems crossing into the Northeast and Southeast markets, which are considered the fastest growing markets. In the Front Range of Colorado, “we’re well set up with CIG [Colorado Interstate Gas] and Ruby Pipeline to be well positioned.” Ruby is scheduled to ramp up service from the Rockies to West Coast markets in July.

On the “supply side,” El Paso pipelines carry unconventional gas from the Marcellus, Haynesville and Eagle Ford shales, as well as the Rockies.

“In a world of flattening gas basis, pipeline connectivity is important,” Yardley said.

From the end of 2007 to the end of this year, the pipeline unit will have recorded 75% revenue growth, from $8.5 billion to $14.9 billion, he said. By the end of this year, 19 projects will have ramped up since 2007.

Because of its nationwide gas infrastructure, which cross some of the most prolific gas plays, El Paso happens to be in “fortunate” position, said Yardley. The pipe unit has 28 Bcf/d of capacity, or 13% of total U.S. capacity. Throughput totals 17 Bcf/d, with 26% of the total delivered to U.S. consumers. Average contracts today average more than six years, up from five years only a year ago.

Among the most fortunate of its systems is Tennessee Gas Pipeline (TGP), which traverses northeast Pennsylvania. Today it transports about two-thirds of Pennsylvania’s Marcellus Shale gas, Yardley said. As of March, TGP was carrying 2.1 Bcf/d.

El Paso has 33 interconnect receipt points into TGP and 14 more are under construction. From 2012 to 2013, TGP revenues of $50-60 million are expected from Marcellus backhauls. El Paso also is spending more than $1 billion on TGP expansions, which are fully subscribed.

“The area is expecting production growth of more than 6 Bcf/d,” and “we are in an excellent position in the Utica,” the pipeline chief noted.

El Paso based some of its projections on preliminary results of a forthcoming study on North American midstream infrastructure projections through 2035 by the INGAA Foundation Inc. The foundation was formed in 1990 by the Interstate Natural Gas Association of America primarily to sponsor research promoting the safe use of natural gas and efficient pipeline construction and operation.

The foundation issued a North American pipeline outlook in 2009, which indicated that as much as $210 billion in pipeline, storage and midstream infrastructure would be required over the next two decades (see NGI, Oct. 26, 2009).

Catherine Landry, who directs communications for the INGAA and the foundation, told NGI last week that the updated report is expected to be available by the end of June and would include the 2009 projections as well as natural gas liquids (NGL) infrastructure assumptions, high-low price/demand scenarios, regional breakdowns of infrastructure and expenditure needs and critical fact checking. The study was conducted by ICF International on behalf of the INGAA Foundation and other sponsors, including America’s Natural Gas Alliance, Landry said.

El Paso’s Pat Johnson, vice president of Strategy, said the INGAA Foundation projections were used in the company’s North American macro gas outlook through 2020. Driving the company’s “infrastructure impetus” to 2020, using the foundation’s preliminary assumptions, will include:

Gas prices also are seen increasing from $4/MMBtu to between $6 and $7.

The preliminary findings indicate that U.S. and Canadian markets are projected to grow from about 76 Bcf/d (28 Tcf) in 2010 to about 106 Bcf/d (39 Tcf) by 2035. Gas consumption in the power sector is “likely to double,” while in aggregate, there is “very little demand growth across other sectors.”

Using the INGAA Foundation’s study, El Paso is projecting gas demand to grow from 2010’s 81.7 Bcf/d to 98.8 Bcf/d by 2020, Johnson said. The Southeast’s growth (3.3%) is highest, followed by Mexico (2.9%), Western Canada (2.8%) and the Northeast (2.4%). Only California is expected to see gas demand fall (down 0.3%) from 6.3 Bcf/d to 6.1 Bcf/d.

Emerging renewable power standards offer “good news and bad news” for natural gas, said Johnson. “Renewables dampen demand for gas but increase demand for infrastructure.” About 33 GW of renewable generation would require about 5 Bcf/d of pipeline capacity, and “up to $15 billion of capital.”

The supply-demand shifts also will drive investments, according to the INGAA study, which is to detail several forecasts. In its gas infrastructure study to 2020, the INGAA Foundation estimated that:

According to the preliminary forecasts, about 27 Bcf/d of incremental pipeline capacity is to be built between 2011 and 2020. After 2020 another 13 Bcf/d is to be built.

“A total of 40 Bcf/d of incremental pipeline is needed to accommodate increasing gas supply that is necessary to satisfy market needs over time,” the study said.

Based on the INGAA Foundation’s preliminary findings, El Paso and its competitors could be in line for some significant projects. According to the study:

With customer relationships established across the country, El Paso should be able to “take a slice” from the total industry spending on pipeline infrastructure over the coming nine years, said Yardley.

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