Unocal Keystone Gas Storage LLC, located in the Permian Basin supply area near the Waha Hub, was granted a conditional blanket certificate by FERC on Wednesday to offer firm and interruptible natural gas storage services interstate by Jan. 1, 2003, and also was given approval to offer market-based rates for interstate storage services. The certificate, noted FERC, will benefit customers by offering more storage and system-balancing options [CP02-317-000].

The limited-jurisdiction blanket certificate approved Wednesday covers interstate service next year, and until then, Keystone will initiate service under the Hinshaw amendment of the Natural Gas Act to operate intrastate in Texas. Specifically, Keystone stated that its rates and services are regulated by the Texas Railroad Commission; it will receive all gas supplies within Texas; and all of the gas received until Jan. 1, 2003 will be used in Texas.

The Keystone project, which is being developed in two phases by the Unocal subsidiary, is located near Kermit, TX. It began operating in late August, offering 2 Bcf of high deliverability salt cavern gas storage capacity, and it also has the capacity to inject 100 MMcf/d and to withdraw 200 MMcf/d (see Daily GPI, Sept. 18). eventually, it expects to provide 5 Bcf of capacity.

The project now connects through a 3.8 mile-long, 16-inch pipeline with El Paso Natural Gas Co. and a 2.5 mile-long pipe to Northern Natural Gas Pipeline Co. (NNG). Keystone also plans to interconnect with Transwestern Pipeline Co., and if there is need, it eventually may apply for permission to interconnect with other pipes. Indirect connections also are planned with as many as four intrastate pipes through the Waha Hub. Once the interconnections are established, Keystone’s geographic markets for storage will include Texas, the western region from West Texas to California and the Midwest from West Texas along NNG to Illinois and Wisconsin.

Keystone also was given approval to charge market-based rates for its interstate services, contending that it was a “very small entrant in a market which, for the most part, is very unconcentrated, and it therefore lacks market power.” Proposed loan services under the market-based pricing will allow gas to be advanced for one calendar month and extended for 30 days. Keystone will use cushion gas to make the advances.

The certificate issued by the Federal Energy Regulatory Commission only applies to the first phase of the project, which will consist of three storage caverns with capacity of 1 Bcf each at the same site. The second cavern is slated to become operational Jan. 1, 2003, and the third cavern is expected to begin operating by July 1, 2004. The second phase, which Keystone has not yet filed an application for, would consist of two additional storage caverns, with 1 Bcf of capacity each.

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