One of California’s long-time natural gas market analysts sees Rocky Mountain supplies and the expanded Kern River Pipeline as adding to new competitive capacity entering California, although there may be some excess capacity to market on a short-term basis due to delayed construction of new electric generating plants.

“I have heard there are a couple of power plants that aren’t coming up as quickly as was previously thought, although I haven’t analyzed specifically who that is and how much power is involved,” said Bill Wood, the former long-term gas supply forecaster at the California Energy Commission. Wood continues consulting with the state agency on energy forecasting assignments, including an upcoming new gas/electric assessment.

“So there may be a little bit of (natural gas) capacity that will be available for someone who wants to ‘rent’ it until the new power plants come on stream. My understanding is the expansion is fully subscribed, but if the power plants aren’t ready, they will probably have the capacity on the market for someone else to use it.

“Depending on how much of that capacity is available, it could lead to some discounting on transportation — in the near term anyway — until the capacity gets to be used by the power plants.”

The two major credit rating agencies late last month gave investment-grade ratings on $836 million of senior notes Kern River is using to guarantee its interstate pipeline operations that have been beefed up mostly through looping of 36-inch-diameter pipe in existing rights-of-way. The expansion serves Southern California and Southern Nevada, two of the fastest growing areas for gas demand in the United States, despite the current economic downturn.

A wholly owned subsidiary of billionaire Warren Buffett’s Des Moines, Iowa-based MidAmerica Energy Holdings Co., Kern River was assessed by Moody’s Investors Service as maintaining its “strong strategic and competitive position” in delivering Rocky Mountain supplies to California and the Southwest. Moody’s made the outlook “stable” for Kern, but Standard & Poor’s while affirming an A- rating made the outlook “negative,” reflecting the growing deterioration of the credit ratings of its customers, something that Moody’s acknowledged, too.

Meanwhile, the California Energy Commission is developing a new natural gas supply/price forecast that will be released later this month (May 21) as part of a combined gas/power report to help the state develop more of an integrated state energy policy, which is due out in the fall.

“Rocky Mountain gas is something that is really looked on favorably these days in California because it is nicely priced,” said Wood, noting that most of the pipeline capacity expansions are completed now, but additional capacity may be needed again in five years.

Generally, S&P’s recent assessment of Kern concluded that risks are low related to remaining expansions because “construction of gas pipelines in North America is typically a fairly straightforward process.” Moody’s noted that the pipeline has access to growing supplies, particularly in the Powder River Basin in Wyoming, and to growing demand in Utah, Nevada and California.

Beginning at Opal, Wyoming, and ending near Bakersfield in California, Kern River’s 680-mile line was expanded with 634 miles of pipe. Its capacity has more than doubled from its original 700 MMcf/d to more than 1.7 Bcf/d with looping done last year and this spring.

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