Firing a shot across the bow of local distribution companies(LDCs), INGAA Chairman Stanley C. Horton, CEO of Enron GasTransportation Services Co., said last week the LDCs are standingin the way of desperately needed interstate pipeline capacity.
There are significant problems looming on the horizon for thepipeline industry as consumer concerns increase in tandem with gasprices, Horton noted. Two regions need immediate pipeline capacityhelp: the Pacific and the Northeast. But several obstacles stand inthe way, not the least of which is LDC rivalry.
“In both regions, pipelines have run into continued oppositionfrom local distribution companies who fear that adding morepipelines will be overbuilding pipeline capacity, therebycheapening pipeline capacity. We don’t think that pipelines oughtto be overbuilt for economic reasons and environmental reasons,”said Horton, speaking last week at INGAA’s offices in Washington,D.C. “We don’t want pipelines that are half full.”
He said as recently as last fall that Transwestern ran intostiff opposition from California’s LDCs over a proposed expansionof 140 MMcf/d, about 10%. The utilities claimed additional pipelinecapacity to California was not needed. “I’m sorry, but additionalpipeline capacity was needed and is needed in California.”
Horton said Transwestern plans to try again soon because itssystem has been running full since the El Paso explosion lastAugust. “I would expect that we will continue to run full for manymonths to come. We are now sold out of firm capacity through 2004or 2005….. We are contemplating an expansion of our system andhave run an open season.” He said meetings on the project would beheld later this week. “I can tell you it’s not going to be below150 MMcf/d.”
PG&E Gas Transmission-Northwest also is planning to expandby 200 MMcf/d and Kern River has a project on file at FERC. Inaddition, FERC has asked El Paso to use the All America Pipeline tocreate new gas transportation capacity to California.
Nearly every pipeline into the state is trying something to easesupply constraints that apparently are behind the price increasesthere. But those plans will do nothing unless local distributorslift their opposition and do a little expanding of their own, saidHorton.
Southern California Gas Co. should take some of the blame forthe recent spot price spikes at the Southern California border, hesaid. Spot prices there reached $69/MMBtu in December, which wasthe highest wholesale price ever recorded since wellhead decontrol.Earlier this month, prices shot back up above $40/MMBtu.
“You’ve got to expand the intrastate systems in California.Takeaway capacity is a constraint. Just creating a bigger strawgoing into California is not going to resolve the problem. You haveto look at the intrastate lines and the distribution system,”Horton said.
There is a “tremendous amount” of interstate pipeline capacitygoing into California that “does not match up” with smallerintrastate lines. Horton said the LDCs recently have shown somewillingness to consider solutions. “We have engaged in someconversations with SoCal Gas and hopefully it will lead to movementon their side. I certainly think they have a reason to want to dosomething about this.”
Horton refuted claims that marketing affiliate abuse was partlybehind spot price increases at the California border. “The onlyarea where [Enron] could [do that] would be on TranswesternPipeline; that’s the only physical asset we have that can move gasinto California. The fact that they have not subscribed any newcapacity on our system since the whole California thing blew up[argues against that]. I think the last time I saw they had lessthan 10-15 MMcf/d of total capacity on the Transwestern system andthose were at rates that we offer everyone else.” He also disputedany suggestions that other companies were engaging in marketingaffiliate abuse, noting that FERC regulations and oversight havebeen more than adequate to prevent such abuse.
Demand growth, heavy reliance on gas-fired generation in thestate and intrastate and interstate pipeline constraints were allcontributing factors to the recent price run-up out West. Thepipeline industry is working hard to cover its part of the bargain,said Horton. California isn’t the only place in need of capacity.Horton expects $2.3 billion to $2.5 billion per year will be spenton interstate pipeline capacity expansions across the country overthe next decade.
LDC opposition is one thing standing in the way of futurepipeline growth. Another is proposed pipeline safety measures, hesaid. The pipeline safety bill that recently passed the Senatecould do significant financial damage to pipelines and distributorsand also could harm the market, Horton indicated, by takingpipelines out of service for testing every five years.
“We are concerned about potential reliability and loss ofcapacity problems that potentially could be caused by the pipelinesafety legislation that was passed by the Senate. It contains somefairly restrictive language calling for five-year inspectiontimetables. Our problem is that as you inspect these lines throughpigging or hydrostatic testing, for some period of time those lineswill be out of service.
“We think there are some places where maybe you ought to testwith more frequency and other places where you ought to test a lotless frequently,” said Horton. “But if you have a law that says youhave to test every five years, I’m not sure for the money that youspent, it is going to provide a corresponding increase in safety.”
What INGAA would like is not something that mandates testing ona certain time interval but rather a testing program “built uponknowledge,” he said. “We have a risk assessment program that we useat Enron and that I imagine most other pipelines use also. In thisrisk assessment model there are hundreds of data elements that gointo this model that tells us where the greatest chance that youmight have a pipeline failure are…based upon history, soilconditions, that kind of pipe, etc. We think that’s a much betterprogram than going around every five years and dig and hydrostatictest every piece of pipe you have.”
INGAA’s Action Plan
Horton said in addition to influencing the shape of the newpipeline safety laws, INGAA’s agenda this year will include anumber of other activities:
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