HOUSTON (Dow Jones)
Several pipeline companies are proposing extensions of the Rockies Express natural gas pipeline into the U.S. northeast, a region that has been among the most resistant to new energy infrastructure.
The initial plan of the $4.4 billion Kinder Morgan Energy Partners (KMP)-led Rockies Express project has been to ship gas into the U.S. midwest from Colorado and other Rocky Mountain states, where a dearth of pipeline capacity has depressed natural gas prices in the region.
Now, six pipeline companies have floated a variety of proposals to extend the line all the way to the northeast, where consumers face gas prices that are sometimes 85% above the national average. If constructed,a northeastern extension would come on line after 2009.
While nobody expects all six lines to be built, analyst predictions vary as to the amount of capacity that will ultimately be added. This uncertainty stems from the region's skittish attitude towards energy infrastructure and the outcome of competing efforts elsewhere in the energy industry to bolster northeastern gas supplies with other projects, such as liquefied natural gas. The outcome has implications for both Rocky Mountain gas producers and northeastern gas consumers.
"There's room for more than one of these projects, but not room for all," said Sam Brothwell, senior analyst with Wachovia Securities in New York, said of the proposed Rockies extensions.
But Porter Bennett, president of consultancy Bentek Energy in Denver, expects just one of the proposals to survive.
"It's pretty hard to see why anyone would support two of them," Bennett said. "I'm just not sure the economics are there."
Current high prices would seem to warrant more pipeline capacity in the northeast. On Jan. 2, gas at Transcontinental Zone 6 in New York, a major pipeline hub for New York City, traded at a high of $52 per million British thermal units, some 85% higher than the Henry Hub price for that day, the benchmark price for natural gas.
But demand isn't set to grow in large billion cubic foot chunks at a time, but rather incrementally, at just under 2% per year over the next 11 years, according to analysts' calculations based on U.S. Energy Information Administration data. The northeast region uses about 9 billion cubic feet of gas per day of the roughly 60 billion cubic feet used in the entire U.S.
Rockies Gas Not The Only Option For Northeast
In another sign of the energy industry's recognition of the northeast's gas conundrum, Exxon Mobil Corp. (XOM), in December proposed to build an LNG terminal 20 miles off the coast of New Jersey and 30 miles south of Long Island, N.Y. The ExxonMobil site would be the latest northeastern offshore LNG terminal; such remote venues are popular solutions for a region that likes using energy but cringes at new industrial facilities near its communities.
The northeast will garner up to 1.5 billion cubic feet of gas supply this year from two new offshore LNG terminals. They are Excelerate Energy's Northeast Gateway project, 13 miles off the coast of Boston, and Canaport LNG, owned by Irving Oil Ltd. and Repsol YPF, SA (REP), which is expected to come online late this year in St. John, New Brunswick, Canada.
The 182-mile Millennium Pipeline is expected to bring gas from Canada through New York State to interconnect with lines that will bring supplies into New York City and its suburbs by November 2008, by replacing older, existing pipeline infrastructure. The project is owned by three local distribution companies, New York-based KeySpan Corp., a unit of National Grid (NGG), Indiana-based NiSource Inc. (NI) and Detroit-based DTE Energy (DTE), and will deliver 525 million cubic feet per day of gas.
"If you look at the incremental things that have been done by the end of this year and next year...you've got some relief without one of those big (pipeline) projects," Bennett said of the Rockies extensions.
All six proposed Rockies extensions are at the very earliest stages of gauging market interest and engineering design.
Of the six proposed offshoots of the Rockies Express, Spectra Energy's (SE)'s "Time 3" project and Kinder Morgan's "Northeast Express Project" offer the most direct relief to areas that suffer the highest prices, said Ken Yeasting, a Detroit-based director with Cambridge Energy Research Associates.
Spectra is still in the engineering phase of the project and hasn't obtained land necessary to build the pipeline, said John Sheridan, a company spokesman. The Spectra line would deliver 300 million cubic feet of gas per day.
Kinder Morgan intends to build its 375-mile extension into Princeton, N.J., and possibly into Linden, N.J. Discussions with interested parties including some producers are ongoing, the company said in a statement.
Williams Corp. (WMB), National Fuel Gas (NFG), El Paso Corp (EP) and Dominion (D), have all discussed shipping Rockies gas to the northeast. These companies have floated proposals that would build lines into areas where prices haven't been quite as high; for that reason, they are probably less likely to be built, Yeasting said.
Analysts rue that many of these proposals won't survive once community groups hear of plans to build new pipelines into the region. Current onshore LNG terminal proposals in New Jersey and Massachusetts have drawn public vitriol from residents who consider them polluting eyesores and terrorist magnets.
Even some offshore LNG sites have generated opposition. Broadwater LNG, a joint venture between TransCanada (TRP) and Royal Dutch Shell (RDSA) is one such project.
Set in the middle of the Long Island Sound, the Broadwater project would have capacity to import 1 billion cubic feet of gas per day. But the project is in limbo following protests from citizens groups who have said Broadwater would encroach on their communities and harm sea life.
"We're not against energy," said Adrienne Esposito, executive director of Long Island-based Citizens Campaign for the Environment, which is fighting Broadwater. "We are against large scale projects that degrade our natural resources."
Esposito said her group backs the Islander East Connector pipeline,owned by Spectra and Keyspan, which would ship gas through a pipeline under the Long Island Sound from the Connecticut side into New York by next year. But that project remains tied up in the 2nd U.S. Circuit Court of Appeals as part of a six-year legal battle after facing opposition from the Connecticut department of environmental protection, which cites the project's harm to aquatic life and habitat.
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