Kern River Gas Transmission received final authorization from FERC on Friday to begin transportation services May 1 on its massive 2003 Expansion Project. Company officials told the Commission last Monday that construction was on schedule and shippers needed about seven days to line up gas supply and market commitments and to make their nominations on the pipeline.

The $1.2 billion project includes the addition of 717 miles of looping pipeline and 163,700 horsepower of compression along the system, which stretches 1,679 miles from southwestern Wyoming to San Bernardino County, CA. The expansion’s additional 885,626 Dth/d of capacity will more than double the space on Kern’s system, bringing firm capacity to 1.73 Bcf/d. About 99% of the new space has been subscribed by merchant power companies who have planned about 6,500 MW of new gas-fired generation in Nevada and California.

However, there have been questions about whether there would be adequate upstream supply to fill the expansion when it begins service and whether there would be adequate downstream demand. Some upstream infrastructure projects that were designed to support the expansion will not be completed on May 1 and may take until the end of the year or longer to complete. On the downstream end, several proposed power plants have been delayed or put on hold while others are facing difficult market conditions in which high gas costs and low power prices are making it tough for merchant generators to run their plants.

Nevertheless, Kern officials said they expect the pipeline to be full soon after the expansion is put into service because of the attractive markets the pipeline serves and rapidly growing supply in the Rocky Mountain region (see NGI, April 7).

There is little doubt that the addition of such a large amount of expansion capacity will have an impact on spot prices at Opal, WY, (where Kern River begins) and potentially on prices across the entire region. Early indications show Opal prices rising significantly and Opal-CIG basis spreads widening about 25-30 cents, said a regional marketer. “A few days ago, I got a one-year strip and Kern was 30 cents higher than CIG. Normally it’s about a nickel, so this is going to really open the door for a huge differential.”

John Harpole of Mercator Energy in Denver said one-year forward basis spreads between an average of CIG-Questar prices and Kern Opal-Northwest prices were 32 cents on April 10. The difference between those grouped locations historically has been about 4-5 cents. Opal and Cheyenne price spreads are running about the same.

“The real story is that southwestern Wyoming has separated from the pack, but what is interesting is that the basis [spreads to the Henry Hub] has gotten better for all four of those pipelines,” said Harpole. “The basis to CIG is minus $1.04 on a one-year deal right now, which is certainly better than what it was three months ago, but still not quite as good as it was historically (54 cents). It’s minus 97 cents for Questar, and Kern and Northwest are at minus 75.9 cents.” In spring of 2002, Rockies’ basis plummeted to minus $1, then minus $2 and at times even fell to less than minus $3.

“The point is people are believing in Kern now,” said Harpole. He added that the next big shift in the Rockies will involve upstream pipelines changing to accommodate shippers seeking access to the higher priced market on Kern River.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.