Less Gas, Higher Prices Seen Due to Rockies Pipeline

Kern River Gas Transmission is warning that construction of the Rockies Express pipeline may tighten the supply of natural gas for Californians. Others worry that it will raise gas prices in the state. "Let's make sure as much of this gas can get to California as possible," said Kevin Billings, Kern River Gas Transmission business development representative. The $4.4 billion, 1,663-mile pipeline would increase the ability to move gas from the Rocky Mountains - the last onshore area of the lower 48 states where production capacity is expanding - to the Midwest and Northeast. Sempra Pipelines & Storage, Kinder Morgan Energy Partners, and ConocoPhillips are investors in the line. The biggest segment between the Rockies and Missouri is pending approval by the Federal Energy Regulatory Commission and should be built by summer of 2008, according to the project builders. Rocky Mountain gas production will rise from 8.8 bcf a day to 12.8 bcfd by 2010, according to Billings. At the same time, gas production in the other basins that supply California - including the Permian and San Juan - will decline. Moreover, he said, California can expect to see less gas from Canada as companies there use it to produce oil from that nation's tar sands deposits. "It's mainly driven by the new production coming on line," said Rick Rainey, Kinder Morgan spokesperson, of the pipeline project. "We're not talking about displacing any production needed in the West." Kinder Morgan is the major partner in the project. Yet, Rainey said, the pipeline will play a key role in further integrating the nation's gas market by opening eastern areas to Rocky Mountain gas. "It will be a function of the market dynamic," he said, "wherever producers get the best price for their gas." As traditional supplies of gas for California continue to dwindle, the Rockies Express pipeline will allow up to 1.8 bcfd of Rocky Mountain gas to be shipped to Midwestern and Northeastern markets when it is fully built into Ohio. "It ensures that the marketer has multiple paths to multiple markets," said Bill Powers, Border Power Plant Working Group executive director. "They can play off these markets against each other." Powers, who closely monitors Sempra Energy and its regulated utilities, said completion of the eastbound pipeline could inflate gas prices in Southern California. The higher pipeline gas prices would prop up the price of liquefied natural gas imported by Sempra Energy at its Baja California terminal, now under construction, he said. It also might increase the price of gas imported by ConocoPhillips at a proposed terminal in Long Beach in which it has an interest. The oil company is a partner in the Sound Energy Solutions proposed LNG terminal in Long Beach. Sempra maintains that any price pressure will be alleviated when its liquefied natural gas plant in Baja California goes on line. "It should push prices downward," said Sempra spokesperson Jennifer Andrews. "The Rockies pipeline was going to get built by someone," she added. "It's an incentive to keep exploring" for more gas supplies. CEC data confirm that supplies from the Southwest and Canada have long been sputtering and that the gas is being replaced by that from Rocky Mountain fields. Southwestern gas supplies to California peaked at 3.7 bcfd in 1991 and declined to 2.3 bcfd in 2004. Canadian gas supply peaked at 1.8 bcfd in 2000 and declined to 1.5 bcfd in 2004. Rocky Mountain gas started to flow to California in 1992 at the rate of 496 MMcfd and increased to 1.5 MMcfd in 2004. The growth in state imports from the mountain region has largely offset the declines in gas from the other areas. Expect that trend to continue, according to the Energy Information Administration in its 2006 Annual Energy Outlook. It forecasts that natural gas production from conventional wells in the lower 48 states, such as those in the Southwest and those in shallow water, will decline from a combined 7.2 tcf/year to 6 tcf/year by 2030. Lower-48 deepwater and unconventional onshore gas - found in tight sandstone formations and coal beds - will grow by 2.3 tcf/year from a combined 9.3 tcf/year to 11.6 tcf/year. That will not be quite enough to meet the nation's projected growth of 4.5 tcf/year. Liquefied natural gas and Alaskan gas will be needed to fill the gap, according to the EIA.

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Less Gas, Higher Prices Seen Due to Rockies Pipeline

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