Kinder Morgan and Sempra Energy said Tuesday that they have secured commitments for the entire 1.8 Bcf/d of proposed firm transportation capacity on the 1,323-mile, $4 billion Rockies Express pipeline project, which would bring Rocky Mountain natural gas east to markets across the Midwest and Northeast.
The companies also said agreements have been reached that will enable the Entrega and Overthrust pipelines to connect with and extend the supply reach of Rockies Express. All of the related projects are expected to be brought online in segments with final completion of the Rockies Express system by June 2009.
“Rarely has a single pipeline had the potential to have such a transforming effect on the North American natural gas industry,” said Kinder Morgan Energy Partners (KMP) CEO Richard Kinder, predicting that gas consumers across the country would see lower gas prices once the pipeline is built.
It would provide eastern markets greater access to 200 Tcf of potentially recoverable Rocky Mountain gas resources, positioning the Rockies to become “the most significant natural gas play in the United States,” he said.
With more than 25 interconnects to intrastate and interstate pipelines along its route, Rockies Express would have a significant impact on the current price disparity between Rocky Mountain basins and other parts of the country, said Kinder.
“Rockies Express will also serve as a catalyst for additional energy infrastructure development along its significant geographic footprint, and our next goal is to develop storage along the pipeline to provide additional growth opportunities for our shippers and investors,” he added. “Discussions with shippers also indicate there is an opportunity to extend the original scope of the project further eastward, and we will begin working shortly to secure such commitments.”
George Liparidas, president of Sempra Pipelines & Storage, said, “Not only will the project provide benefits for producers and end users, but also for the communities along the pipeline route by generating property tax payments, employment opportunities and increased spending on local goods and services.”
KMP will operate Rockies Express and will own two-thirds of the project, while Sempra Energy has a one-third ownership stake. KMP and Sempra Pipelines & Storage recently closed on the purchase of Entrega Pipeline LLC from an affiliate of EnCana Corp. and commenced providing interim service from the Meeker Hub in Colorado to the Wamsutter Hub in Wyoming.
In addition, Rockies Express has executed binding definitive agreements with Questar Overthrust Pipeline Co., a wholly owned subsidiary of Questar Corp., for a long-term lease of 625 MMcf/d of capacity on Overthrust that will extend the reach of Rockies Express from Wamsutter to the Opal Hub in Wyoming. The capacity lease on Overthrust can potentially be expanded up to 1.5 Bcf/d.
Overthrust plans to construct new interconnections from its existing 88-mile, 36-inch diameter pipeline to various receipt points in the area of the Opal Hub. Overthrust also would build an extension from its current terminus at the Kanda Station near Rock Springs, WY, to physically connect with Entrega at the Wamsutter Hub. The 330-mile Entrega system is being built from the Piceance Basin in western Colorado north to Wamsutter and then East to the Cheyenne Hub in northern Colorado. The Overthrust capacity lease will effectively extend the Entrega system to Opal.
KMP and Sempra said Rockies Express could not have happened without the leadership shown by EnCana through its 500 MMcf/d firm transportation commitment and its willingness to allow Entrega to be integrated into Rockies Express.
The project sponsors also said they owe a “debt of gratitude” to the Wyoming Natural Gas Pipeline Authority (WPA), which has been an advocate of Rockies Express since the project’s inception, from an initial firm capacity commitment through attendance at shipper meetings to support the project.
The Interior Department’s Minerals Management Service (MMS) also provided support for the project through its decision to subscribe for 50 MMcf/d of long-haul capacity on a long-term basis to service its royalty in kind gas program in Wyoming. The sponsors said that major and independent producers form the bulk of the remaining firm commitments on the project.
“You look at the commitments we got from EnCana, ConocoPhillips (400 MMcf/d), BP (300 MMcf/d), EOG (50), Sempra (200), Ultra Petroleum (200), Barrett [Williams] and others; It is a supply-driven project with major producers standing behind it,” said Scott Parker, president of Kinder Morgan’s natural gas pipelines group.
“Anytime you build a real big pipeline, a 42-inch diameter pipeline, across America from the Rockies to Ohio we suspect that it would tend to lower the price of gas in those regions that the pipeline is entering. At the same time it should raise the price of gas for Rockies producers,” Parker noted.
“We’re going to charge about $1.07/Dth as a toll and these shippers have signed up for 10 years at a fixed rate so the price of gas doesn’t matter to the project, but it does matter to our shippers of course. If you look out to [the forward contracts for] 2007-2008, the price difference between the Rockies and eastern markets already is much less than what it is today.”
In conjunction with the capacity lease from Overthrust and its agreement to extend its facilities to connect with Entrega at Wamsutter, the Rockies Express project will provide seamless service to shippers from the Opal and Meeker hubs to Clarington, OH, and perhaps beyond, the companies said.
KMP and Sempra intend to file an application with the Federal Energy Regulatory Commission (FERC) in May for the first 710-mile pipeline segment of Rockies Express, from the Cheyenne Hub in Colorado to an interconnection with Panhandle Eastern Pipeline Co. in Audrain County, MO. The first segment of the system will parallel Kinder Morgan’s Trailblazer Pipeline and the Platts Pipeline, which is owned by Terasen, a company recently purchased by Kinder Morgan.
FERC granted the Rockies Express request to commence the pre-filing process under the National Energy Policy Act in November 2005, and has announced its intent to prepare an environmental impact statement for the first segment of the project for which public scoping meetings have already been completed.
To help minimize the environmental impact of the pipeline project, Rockies Express has proposed that about 90% of the project’s route parallel existing utility corridors. For the second and third segments, the system will parallel competitors’ pipelines through Illinois and Ohio.
Service on the first segment, including transportation of gas from the capacity lease on Overthrust and any necessary expansion of Entrega, is expected to commence on Jan. 1, 2008, subject to regulatory approvals. The second segment, which is planned to be in service in January 2009, will continue to the Lebanon Hub in Ohio. The third segment to the Clarington Hub is expected to be in operation no later than June of 2009.
However, Parker said that Kinder Morgan already is discussing expansion plans. “We’re not going to sit on our laurels,” he said. “We’ve talked about it and we are going to continue to look at expanding this pipeline further east and looking at adding storage to it also… By the time we [finish the Clarington segment] we should have something announced that moves the project even further East.
“We are just starting to talk to our shippers about where we go from here and there’s a lot of interest in [the Leidy Hub in Pennsylvania] and there is a lot of interest even further East in penetrating the market further and those are some of the things we are just going to have to work through over the next few weeks and then come out and look at an open season.”
He also said that Kinder Morgan probably will add storage capacity to the system through the addition of new and existing storage fields. “We are one of the biggest storage operators in the country today and in the Midwest we have a huge storage asset base,” he noted. “We would expect to look at some new storage in the West. In the Midwest, we would look at some of our existing fields and our ability to expand them. In the East, we will definitely look at new storage development.”
For more information on Rockies Express, contact Jeff Rawls at Kinder Morgan at (303) 914-4903 or Ryan O’Neal at Sempra Pipelines & Storage at (619) 696-4585.
In a separate announcement Tuesday, Kinder Morgan said it plans to finance the $4 billion Rockies Express project and its proposed $500 million Kinder Morgan Louisiana Pipeline with 50% equity and 50% debt.
“We will issue equity at KMP for these projects in tranches to coincide with construction and in-service dates,” said Richard Kinder. “The permanent debt for the Rockies Express Pipeline, as a joint venture, will likely be non-recourse to KMP. We have already reviewed these financing plans with the ratings agencies and will continue to work with them to ensure that they are comfortable with our approach.”
Standard & Poor’s Ratings Service said the plans would not result in any change to KMP’s near-term credit ratings. However, S&P placed a negative outlook on the partnership and its general partner, KMI, due to the possibility that “aggressive capital spending…could place undue stress on the financial protection measures and lead to lower ratings.”
The Louisiana pipeline would transport up to 3.2 Bcf/d of regasified LNG from the Cheniere Energy LNG import terminal in Sabine Pass, LA, to various pipelines serving markets in the Southeast, Northeast, Midcontinent and Midwest (see Daily GPI, Feb. 2). Construction on the Louisiana system is expected to begin in July 2008, with initial service slated for as early as October 2008.
It would consist of two segments: a 137-mile, 42-inch diameter pipeline with a maximum firm capacity of 2.13 MMDth/d connecting to a number of pipes within Louisiana; and a one-mile, 36-inch diameter line with maximum firm capacity of 1.26 MMDth/d that would interconnect with Kinder Morgan’s Natural Gas Pipeline Co. of America system in the vicinity of the terminal. The project also calls for the construction of a 2.2-mile, 24-inch diameter lateral connecting with Florida Gas Transmission’s system in Acadia Parish, LA. Total and Chevron have signed up for all of the capacity on the pipeline system.
Once completed, the combined financial impact of the Rockies Express and Louisiana pipeline projects is expected to allow for an increase of $0.15 to $0.20 in cash distribution per unit at KMP and $0.50 to $0.60 in earnings per share at KMI, Kinder Morgan said.
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