NGI The Weekly Gas Market Report
TransColorado Gas Transmission started pressuring up it Phase 2extension into western Colorado last week and expects to begintransportation services from the northern Rockies to the San JuanBasin some time next month, pending FERC approval of its ratedesign.
The Phase 2 pipeline consists of 275 miles of 22-inch and24-inch diameter pipe that extends from San Juan County, NM, up toa point 25 miles east of Rangely in Rio Blanco County, CO. With thestart-up of Phase 2, TransColorado will offer open accesstransportation for an incremental 300 MMcf/d. Phase 1, which wascompleted in December 1996, included 22.5 miles of 24-inch diameterpipe, and 2.5 miles of 16-inch diameter pipe, extending from theCoyote Gulch plant in La Plata County, CO, to the Blanco Hub nearAztec, NM. The entire project cost $284.4 million.
Phase 2 is designed to create new access to San Juan basininterconnections with primarily westbound pipes for Rocky Mountainnatural gas supplies. However, the pipeline faces an uphill battlebecause market conditions over the last year have reduced basisbetween northern Rockies points and the San Juan Basin to less than10 cents on average from more than 30 cents in 1997. TransColoradowill have a difficult time charging its filed for maximum rate ofabout 39 cents/Dth.
“As we bring on the pipe in order to encourage throughput, we’recertainly going to have to consider discounts,” TransColorado’sJulian Huzyk admitted. “But we’ve seen basis blow out in the summerin the past such that we think we’re going to be able to charge themax rate during the summer months, and on average we hope we’ll beable to capture a large portion of that rate.”
Huzyk said 1999 will be a turning point for San Juan Basincoal-seam gas production, which means increased flows onTransColorado. “Probably this spring will be the most difficultperiod for TransColorado with Phase II coming on line,” said Huzyk.”But we see some evidence that coal-seam declines are kicking in,and your are going to see supply start to decline significantly,much more so than the amount of gas we’re bringing in onTransColorado.
“Another thing we are encouraged by is the stepped up demand inCalifornia. The economy is running very hot. PG&E’s system wasrunning at the ragged edge in November and December. SoCal has beenrunning within 200 MMcf/d of their capacity.”
In addition, cut-backs in drilling budgets will limit increasesin conventional resources in the basin, he said. “Despite El PasoField Services global compression project they had only a slightuptick of conventional gas production September through October,and since then they haven’t seen any significant improvement.Really what they are counting on is producers getting out there andaccelerating conventional development to offset coal-seam declines.The problem is [low crude oil prices]. They’re holding backdrilling programs.” The bottom line is it’s finally time to openthe valves and give the northern Rockies greater market accessthrough TransColorado.
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