Developers of the massive Rockies Express pipeline are a few steps closer to potentially reshaping the U.S. natural gas market.

A deal announced Wednesday between Spectra Energy Corp. (SE) and Rockies Express partner ConocoPhillips (COP) will bring more cheap Rocky Mountain gas from the $4.4 billion pipeline to eastern markets, where it will command top dollar.

The pact comes just a day after the project's partners, including Kinder Morgan Energy Partners LP (KMP) and a unit of Sempra Energy (SRE), announced the completion of the 713-mile western portion of the pipeline. The pipe's eastern leg is due online by mid-2009. Once completed, the Rockies Express will stretch 1,678 miles from Colorado to Clarington in eastern Ohio. The companies are aiming for an online date of November 2010.

The Rockies Express "represents a pretty significant supply source for the East, which is a growing market," said Bill Yardley, group vice president of Spectra Energy Transmission.

Instead of building one, large pipeline to connect the Rockies pipeline to a large eastern city like New York, Spectra is working on four different projects. Demand for Rockies gas is scattered across the East, so it makes sense to upgrade existing pipes to handle more gas, rather than deal with the high cost of building new facilities, Yardley said.

Rockies gas "scatters from Ohio to many markets," he said.

The terms of the Spectra-Conoco deal weren't disclosed, but Spectra said it will expand its Texas Eastern Transmission pipeline at a cost of $500 million or more to move 395 million cubic feet a day of Conoco gas from Ohio to Pennsylvania. Separate Spectra projects include the $150 million Northern Bridge, which would boost capacity of a pipe from Clarington, Ohio, to Oakford, Pennsylvania, to 500 million cubic feet per day by late 2009. Spectra's Time 2 and Time 3 projects would expand pipeline capacity to carry more Rockies gas to various points in Ohio and Pennsylvania.

New Pipe Could Drive Big Change In Gas Market

All told, the Rockies Express could prompt a major shift in the U.S. market by making as much as 1.8 bcf a day of Rockies gas, recently selling at rock-bottom prices, available to key demand centers in the Northeast.

A gas pipeline bottleneck between the Rockies and markets to the East has meant Western producers have had to sell their gas at steep discounts to the Henry Hub in Louisiana, the benchmark for U.S. spot natural gas prices. Spot gas at El Paso Corp.'s (EP) Colorado Interstate Gas, or CIG, pipeline - the benchmark for Rockies gas - has been trading at an average 23% discount to the Henry Hub in May.

Other gas from the Rockies Express will find its way to eastern markets through Williams Cos.'s (WMB) Rockies Connector Pipeline and Northeast Connector Project. Williams said Tuesday it is seeking shipper commitments for the two projects, which would expand its Transco pipeline to ship Rockies gas to southeastern Pennsylvania and to New York.

Kinder Morgan, which owns 51% of the $4.4 billion Rockies pipeline, bought the project from EnCana Corp. (ECA) in 2006 for $244 million. EnCana, Conoco, BP PLC (BP), Ultra Petroleum Corp. (UPL), EOG Resources Inc. (EOG) and Sempra unit Sempra Marketing hold capacity on the pipeline.

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

Related Project
Rockies Connector Pipeline
Facility Type: Pipeline Owner: Williams
Scope: Expansion Location: York County, Pa. to Monroe County, Ohio United States