El Paso Corp. last Thursday placed into service its 680-mile, 42-inch diameter Ruby Pipeline, which will ship Rockies natural gas to West Coast markets in direct competition with Canadian gas. Ruby is the largest gas pipeline project to serve the West since the expansion of the Kern River Gas Transmission in 2003, according to the Energy Information Administration (EIA).

“Ruby is across the finish line, completing more than three-and-a-half years of stakeholders’ outreach and construction,” said Jim Cleary, president of El Paso’s Western Pipelines. The $3.55 billion Ruby Pipeline, which has a capacity of 1.5 Bcf/d and is expandable to 2 Bcf/d, will transport natural gas from an existing supply hub at Opal Hub in Lincoln, WY, to interconnections near Malin, OR [CP09-54].

The pipeline, which went into service one day after receiving the go-ahead from the Federal Energy Regulatory Commission (FERC), increases the regional capacity to move gas from the Rockies region to the West by more than 50%, the EIA said. Initial scheduled volumes on Ruby’s mainline heading West for the initial gas day July 28 were about 65 MMcf/d, or about 5% of the total initial capacity of 1.5 Bcf/d.

“Flows could ramp up more significantly Aug. 1, when demand fees and baseload contracts on Ruby kick in,” said Bentex Energy in its “Market Alert” last Thursday. However, “questions remain as to what extent Ruby will gain market share at Malin in the near-term, given several important market developments, including: 1) regional gas-on-gas competition; 2) more profitable spreads currently from Alberta, Canada, via GTN [Gas Transmission Northwest pipeline]; and 3) capacity constraints currently imposed on the entire PG&E [Pacific Gas and Electric] system,” it said.

Last Wednesday PG&E said nominations began being accepted starting gas day July 28 for the new Ruby Interconnect point on its California Gas Transmission (CGT) system. PG&E noted that Ruby will bring Rocky Mountain gas to a new receipt point into CGT’s Redwood Path at Onyx Hills, near the California/Oregon border near Malin.

PG&E added that Canadian gas will continue to enter CGT’s system through the TransCanada-GTN interconnect at Malin. The interconnect with Ruby will be a totally separate interconnect, located approximately 2 miles from the GTN interconnect.

Ruby told FERC that it expects the pipeline to have an approximate throughput load factor of less than 60% for the first several months following commencement of operations. While long-term demand for gas in the project area remains strong, Ruby said near-term pipeline utilization is likely to be lower than expected. Considering that Ruby is just starting up, it is not too surprising that gas nominated for Thursday’s gas flow on the pipe was extremely light.

PG&E is the anchor shipper on Ruby, holding 375 MMcf/d of the capacity, while Rockies producers hold about 620 MMcf/d of the remaining capacity, according to Bentek Energy. Approximately 1.1 Bcf/d of Ruby’s capacity is under 10- to 15-year contracts, said El Paso spokesman Richard Wheatley. The long-haul pipeline will deliver natural gas from major Rocky Mountain basins to consumers in California, Nevada and the Pacific Northwest.

While Ruby is designed to operate at a maximum allowable operating pressure (MAOP) of 1,440 psig, it placed its pipeline into service at an MAOP of 1,296 psig. The reduced MAOP allowed Ruby to begin service prior to receiving approval from the Pipeline and Hazardous Materials Safety Administration, which is required before a pipeline can flow gas at higher operating pressures. The pipeline said it will be able to meet all of its current contractual obligations for firm transportation at the reduced MAOP.

In a related development, FERC approved Ruby’s requests to revise upward its initial rates for firm long-term transportation service to recover anticipated higher project costs, and to revise its initial in-kind fuel retention rate downward to reflect an expected decrease in projected fuel consumption.

Ruby Pipeline’s request for an increase in its initial recourse rate for firm long-term transportation service was based on a projected hike of $590 million in the pipeline’s project costs to $3.55 billion. Ruby cited “delays experienced in obtaining authorizations and permitting, additional necessary cultural resources survey and mitigation work, and litigation” as the reasons for its revised estimate. As a result of these factors, Ruby said project construction was delayed by about three months, causing the El Paso pipeline to incur “significantly higher costs.”

To recover the higher project costs, Ruby proposed a revised initial recourse rate for firm long-term transportation service consisting of a monthly reservation rate of $34.586/Dth and a commodity charge of $0.0100/Dth delivered. This compares to the initially proposed monthly reservation charge of $30.998/Dth and a commodity rate of $0.0150/Dth.

The pipeline said it also expects to revise its charges for other services, including short-term firm transportation, interruptible transportation, park and loan, and swing service.

“Ruby maintains that should the final project costs prove to be materially less than the revised estimate of $3.55 billion, it will seek Commission authorization to lower its rates to accurately reflect the final project costs,” the order said.

In order to avoid an over-collection for fuel, FERC also approved Ruby’s request to decrease its initial in-kind fuel retention rate to 0.05% from 0.552%. However, Ruby said it is not seeking to revise its previously approved lost and accounted for retention rate of 0.15% or to change its fuel mechanism.

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