No one stepped up to take either of the two 593,000 MMBtu/dpackages of El Paso Natural Gas transportation capacity NGC postedfor release over the past 10 days. One package was offered thoughthe end of April and the other through December 1999. Theycomprised 40% of the 1.3 Bcf/d NGC holds on El Paso and 80% of itsaccess to the San Juan Basin under the purchased contracts. NGC’sMike Flinn said market players missed a huge opportunity. One thatNGC isn’t likely to offer again.

“I think this clearly demonstrates the market has thumbed itsnose at it and it’s really just a price issue,” said Flinn, generalmanager of trading and commercial operations. “Who can say what thevalue of it is. We won’t know until we get down the road and letthis dynamic market out West develop.”

Flinn said besides posting the capacity on El Paso’s bulletinboard, NGC was “proactive and made several phone calls to ourcompetitors and others as well as the utilities, letting them knowwhat we were doing, making sure that they had full warning so theydidn’t say ‘well, we didn’t see it.’ And I can tell you that we didnot get one single phone call from anybody in the marketplaceasking if we would be willing to split it up, or would we considernegotiating a little bit lower prices, different load factor or adifferent delivery point. So from that perspective, I’m not surethere’s a whole lot for these folks to argue about.” It was a bigsurprise given the level of criticism of NGC’s $70 million contractfor the capacity. “FERC, I think, is going to continue to lean inthe same direction they did in the [March 3] technical conference,”i.e., in NGC’s favor, he said.

April was the first month NGC posted any of its capacity on ElPaso and critics of its deal with the pipeline have said thewithholding of that capacity coupled with provisions in the NGC-ElPaso contract that create a disincentive for the pipeline to sellIT amount to restraint of trade and violate antitrust laws. But NGCsaid the lack of market interest in the capacity supports itsposition.

NGC has posted a total of three packages of firm capacity in thelast several weeks, according to Flinn. The third was an April-onlyposting for 20 MMcf/d. After “the market said that appeared to bejust a token amount, we said okay if there’s that big a demand forthe space and people really need a lot of volume, we’ll put a largevolume out there…. They could have bought it and re-released itas well. And there are people out there that have loads in excessof this volume that will be effective May 1.” He mentioned AESCorp., which paid $781 million for nearly 4,000 MW of generatingcapacity auctioned by Southern California Edison in December. “.AEShas an on-peak load that could be as much as 1 Bcf/d of gas andthey don’t have any fuel set up for that yet,” he said. “There arenew market players that have demand in excess of what we put out onthe board. It’s got PG&E as a primary delivery point but youcan nominate to [three] other delivery points [at Topock].”

A number of observers scoffed at the near maximum rates NGC wasoffering, however. Transwestern’s Steve Harris said he expectedshippers would sooner sign up for TW capacity at 10 cents/Dth,rather than pay 34 cents/Dth to NGC and risk overbuying. But heconceded TW has no capacity available from the San Juan Basin tothe border. Flinn said NGC posted the large block of capacity atclose to maximum rates (36 cents/Dth, plus volumetric and fuelcharges) because that is what it expects the value of the capacityto average, if not this summer then certainly next summer. Recentstrong market prices for gas and capacity clearly show the value ofaccess to the San Juan Basin.

“The market out there is extremely dynamic and it’s going to bechanging immensely between now and next year. It will be changingrapidly within the next month or two as you have new power plantschanging hands, capacity changing hands on some of the other pipes,like PG&E, PGT, different issues on Transwestern. Then as yougo into next winter, there is what looks to be like quite a largethreat that Canadian gas will not be showing up in California [andwill] migrate to the Midwest. The market right now, according towhat we’re hearing, is saying deliverability out of Canada cannotkeep PGT’s, Northern Border’s and TransCanada’s incremental spacefull. California happens to be the lesser netback for theCanadians, so it looks like there should be a continued need formore gas and capacity out of the Southwest, to be served primarilyoff Transwestern and El Paso.”

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