With its latest expansion running full and at times over-capacity, Kern River Gas Transmission is considering another 500 MMcf/d expansion of its line from the Rockies to California, Kirk Morgan, pipeline vice president, told Rocky Mountain producers in Denver Wednesday.

The pipeline, which currently has a capacity of 1.75 Bcf/d, including the 900 MMcf/d expansion that went into service in May, would increase that to 2.25 Bcf/d if it finds support for the project. Morgan said. He pointed out that the latest expansion opened May 1 at a 95% load factor and has essentially run full ever since. On several peak occasions throughput rose above the nameplate capacity to a high of 1.96 Bcf/d.

Morgan appeared on a panel of Rocky Mountain pipeline executives at the annual natural gas conference sponsored by the Colorado Oil and Gas Association (COGA). Two other major new pipeline projects originating in the Rockies, Beacon Pipeline by Enbridge Inc. going to Chicago (see Daily GPI, Aug. 7), and a line to the Midcontinent by Kinder Morgan Energy Partners LP and Nicor Inc. (see Daily GPI, Aug. 6), were announced at the COGA conference in Denver attended by about 1,200 people this week.

Not all of the gas running on Kern River is new load. Morgan pointed out that Kern’s lower prices had displaced about 400 MMcf/d from Canada and about 200 MMcf/d from the Southwest. Bolstering the line dropped the pipeline’s rates by 6.5 cents or 11.4%. He said the basis differential for Rockies gas dropped from $1.64/MMBtu “to the low 50s, close to the cost of transportation” when the expansion went into service.

Morgan noted there is about 2 Bcf/d of expiring LDC contracts in California that will up for grabs and 3,000 MW of additional power generation load scheduled to come on in the next several years. The Permian and San Juan Basins which are heavy suppliers to California are showing declining production, while Rockies gas production is increasing. He noted there has been a 63% growth in Rockies production over the last 10 years.

Southern California Gas is working to correct intra-state gas constraints that limit gas-on-gas competition at the border, Morgan said. While gas is not rejected at the border, there is not enough take-away capacity to make the market competitive.

Kern River will be proceeding with an open season later this year with a target in-service date of late 2005 to early 2006 if there is enough support for another 500 MMcf/d.

But that support has to come from credit-worthy customers, both Morgan and Chairman David Sokol of Kern’s parent MidAmerican Energy Holdings, said, noting that four Kern River shippers had gone into bankruptcy in the last year. “Before we build access to those markets, there must be adequate credit-worthy shippers.” Sokol said producers would have to get behind the projects, replacing the nearly extinct merchant energy industry.

Sokol, one of the conference keynoters, also pointed out that other pipelines are re-examining planned projects, particularly those that would fuel new power plants in what he called “a deteriorating market.” The Enbridge sponsor of another proposed pipeline from the Rockies also advised producers they would have to make capacity commitments or commit supply to distributors who would then sign up for firm capacity to make the projects viable.

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