Much higher gas prices and a more intense interest in adding gas production in the Rockies has TransColorado General Manager Julian Huzyk optimistic that a major pipeline expansion out of the region is more likely now than ever before. TransColorado last week revised its expansion plans to accommodate a total of 600,000 Dth/d of new production from the Piceance, Paradox, Uinta and other basins in Colorado, Utah and Wyoming. It previously had been planning a 150,000 Dth/d expansion (see NGI, Jan. 27).

“What’s happening fundamentally is we’ve got tremendous supply growth happening in the Paradox and Piceance Basins right next to TransColorado,” said Huzyk. “It’s primarily a response to the supply development that’s happening on the Western Slope in Colorado.

“We do have some market interest from the market group that [Kinder Morgan’s] Silver Canyon project is playing to, but fundamentally we are supply driven.”

TransColorado, which currently has long-haul capacity of 300,000 Dth/d, extends about 300 miles from the Greasewood Hub in Rio Blanco County, CO, to the Blanco Hub area in the San Juan Basin, interconnecting with several major interstate systems along the way. As part of TransColorado’s open season, it is looking for support for a 100-mile extension from the Blanco Hub area in San Juan County, NM, to Window Rock in Apache County, AZ, where it would connect to Kinder Morgan Energy Partners’ proposed Silver Canyon Pipeline as well as the existing El Paso and Transwestern pipeline systems. The extension would be capable of transporting 750,000 Dth/d.

The 455-mile Silver Canyon Pipeline project would originate from Window Rock and move natural gas westward to various points in the Phoenix market, terminating at the California border near Ehrenberg, AZ. Kinder Morgan also currently is holding an open season on Silver Canyon, which would offer connections to proposed third-party pipelines, SoCalGas and North Baja, and proposed gas storage facilities in Arizona.

“There are significant market dynamics in terms of incremental gas-fired electric generation that is continuing to go in and will come up over the next couple years,” said Huzyk. “Plus there is no market competition into the Phoenix area. El Paso has a lock on the Phoenix marketplace. It’s like 6,000-8,000 MW of electric generation that is continuing to go in place, and you have to add to that the complexity of the allocation of capacity on El Paso — everyone is anxious to see what happens with that because there’s really not enough capacity, from what I understand, on El Paso to serve both the traditional California market and the east of California Phoenix customer base.”

Huzyk noted there is significant interest on the part of power generators in Arizona for access to cheap San Juan and northern Rockies gas production. There is a competing project to the Silver Canyon line, however.

The Picacho Pipeline would extend from the Permian Basin along the same energy corridor as El Paso to Phoenix and then to Ehrenberg (see NGI, Jan. 27). Phoenix-based Pacific Texas Pipeline Corp. is moving toward a FERC certificate filing in the third quarter for the proposed $1 billion, 800-mile Picacho system, which deliver 1 Bcf/d of gas to rapidly growing power generation, industrial and local utility markets in Arizona.

“Not to pooh-pooh them, but everything I’ve heard is telling me that there’s not a real serious support group behind the Picacho project,” said Huzyk. “They have some aggressive promoters, but not solid financial backing, and the dynamics of how they are going to sign up Permian gas to go west to Phoenix is beyond me.” He noted that Permian gas often travels to the best market, whether that’s California, eastern Texas or northern markets in the Midcontinent and Midwest. Basis spreads also are much tighter from the Permian Basin to the Phoenix area than from the San Juan basin to Phoenix, he noted.

He said 75% the gas that will be traveling down Silver Canyon probably will go to California markets. “We’re the only ones going straight to Phoenix. They even called and asked us about using the western portion of our line to go to Ehrenberg.”

Even if Silver Canyon doesn’t go forward because of competition with Picacho, TransColorado’s project still would be viable, said Huzyk. “It’s supply driven. If I get to Blanco, I’m happy because there is room at San Juan today.”

Huzyk said one of the concerns in the Southwest marketplace is the longevity of the San Juan Basin. San Juan gas production has dropped 10% in the last two and a half years. “It’s gone from 4.4 Bcf/d down to under 4 Bcf/d. That New Mexico coalseam stuff has dropped off dramatically and the in-fill development is not keeping pace with the steepness of the decline on the coalseam,” said Huzyk. “There is anxiety about how well the San Juan holds up.”

TransColorado solves that supply problem because it provides another “straw out of the Rockies.”

“There are 15 rigs running in the Piceance currently and there’s a big development program planned,” he said. There are two major players in the Paradox Basin: Cabot and Tom Brown, and they’ve both had significant finds in the past drilling season.

“We’ve gone from no production out of the Paradox two years ago to where we’re now moving 50 MMcf/d, and the last well that one of those producers completed in the Paradox was a barn burner and they are curtailed behind facilities today. We’re looking at this year’s drilling program potentially adding significantly to it.”

The biggest producer in the Piceance is Williams (formerly Barrett Resources), and as Williams resolves its financial crisis, production growth should continue. “They are performing very nicely for us today and I expect them to ramp up their drilling. ExxonMobil built a new processing plant in the Piceance Basin last year that is tied into TransColorado. They have only fledgling production but they have a deep well program with several wells coming on this year that look very promising.”

Tom Brown, Encana and several other producers also are active in the Piceance. Huzyk wouldn’t predict production growth, however. “I’ve signed confidentiality agreements. But I’ve had some big numbers by four of those producers up there.”

The story in the Piceance, and perhaps the Rockies as a whole, is there’s never been enough pipeline capacity and market access to allow producers to get comfortable enough to drill a significant amount of exploratory and development wells to establish how large the resource base is there.

“There have been suggestions that the Piceance and Uinta basins are the next San Juan Basin in the offing and some of the result that we are seeing would suggest that there is some tremendous ability for them to ramp up,” Huzyk said.

“The fundamentals have always been there. It’s just we got off to a — no pun intended — ‘rocky’ start.”

For more information on the TransColorado open season, contact Julian Huzyk at (303) 763-3230.

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