Williams Cos. (WMB) and TransCanada Corp (TRP) said Monday they've agreed to sell Sempra Energy (SRE) a stake in a pipeline they're developing to bring cheap Rocky Mountain natural gas to the West Coast.

San Diego, Calif.-based Sempra would acquire 25% of the pipeline under a memorandum of understanding signed by the companies. Sempra will contract for capacity on the pipeline, called Sunstone Pipeline, which would be built between Opal, Wyo., and Stanfield, Ore., along the route of the existing Northwest Pipeline owned by Williams. The proposed 585-mile, 42-inch-diameter pipeline would have a capacity of up to 1.2 billion cubic feet a day and is estimated to cost $2.34 billion.

After looking at various proposals to ship more Rockies natural gas to the West Coast, Sempra decided the Sunstone Pipeline was the most promising, said George Liparidis, president and chief executive officer of Sempra unit Sempra Pipelines & Storage. Because the pipeline will run along an existing right-of-way, it's more likely to be permitted and built than a pipeline proposed on "virgin soil," he said.

"This was the best for users and producers, and that's the one we wanted to support," Liparidis said. "When you bring on these very capital-intensive projects, you need to get as many people interested as possible to make it a go."

Sempra hasn't yet decided which of its units will take capacity on the pipeline, Liparidis said.

Seven other companies have agreed to take capacity on the pipeline, said Williams spokeswoman Michele Swaner. She declined to name the companies or say how much capacity is left. Williams hasn't filed any permitting applications yet, she said.

"We're still in the preliminary stages," Swaner said.

The Sunstone Pipeline is competing against two other projects being proposed to bring more Rockies gas to the West Coast. El Paso Corp. (EP) has proposed building a 680-mile, 42-inch natural gas pipeline from Opal to Malin, Ore. with a capacity of 1.2 billion to 2 billion cubic feet a day. Spectra Energy Corp. (SE) also wants to build a pipeline from Opal to Malin, with 1 billion cubic feet/day of capacity.

Feeding High Demand

Natural gas from the Rocky Mountains is in high demand on both coasts, as production there has been ramping up while prices have remained well below what gas fetches at eastern and western hubs.

Spot natural gas for Tuesday delivery traded Monday at the Opal, Wyo., hub for an average of $7.91 per million British thermal units, according to the IntercontinentalExchange. By contrast, spot gas at the Southern California border with Arizona traded for an average $12.05/MMBtu, while gas at PG&E's Citigate hub in Northern California went for an average of $12.38/MMBtu, according to ICE. On the East Coast, next-day gas traded for an average of $13.59/MMBtu at the Transcontinental Zone 6 hub in New York.

Sempra Pipelines is a partner in the Rockies Express Pipeline, which will span 1,678 miles from Colorado to eastern Ohio when completed. The pipeline, which is co-owned by Kinder Morgan Energy Partners LP (KMP) and oil major ConocoPhillips (COP), is partially complete and runs from Colorado, through Wyoming, to Missouri. Federal regulators approved construction of the final 638 miles of the pipeline earlier this month.

Sempra owns California utilities Southern California Gas, which serves about 5.7 million retail customers, and San Diego Gas & Electric, which has about 830,000 retail gas customers. Liparidis wouldn't say whether Sempra would sell Rockies gas from the Sunstone Pipeline to utility customers or to other customers.

Copyright (c) 2008 Dow Jones & Company, Inc.

Related Project
Sunstone Pipeline
Facility Type: Pipeline Owner: Sunstone Pipeline (Williams; TransCanda Corp.; Sempra Pipelines & Storage)
Scope: New Construction Location: Opal, Wyo., to Stanfield, Ore. United States