Questar to pursue gas-power convergence strategy

By Ann de Rouffignac
OGJ Online

HOUSTON, Mar. 14�Reflecting a new convergence strategy, integrated gas company Questar Corp. will pursue power plant acquisition or development along its pipeline system in the Rocky Mountains.

Keith Rattie, recently appointed chief operating officer, speaking at an analyst meeting in New York Tuesday, described a plan to develop or buy into power projects along its �hub and spoke� pipeline system.

The company has reserves in the ground and delivery capability. It needs to develop services that will �optimize� those pipeline and exploration and production capabilities, Rattie said in an interview.

�Questar�s natural gas can be sold, put back in the ground to wait for higher prices, or turned into electricity,� he said. Because demand for power is growing in the western states, the company believes there is potential for a peaking plant on its pipeline system, he said.

Rattie is seeking to increase the 55-60% load factor on its Rocky Mountain pipeline. The Rocky Mountain gas market has traditionally been a winter peaking market. But that is changing to a dual peak market.

�We plan to develop services that will serve the summer peak, too,� he said.

Those services would include storage facilities, especially high deliverability storage to serve power plants. �We are planning low risk entry strategies,� said Rattie. �That could mean alliances or investments in current projects�but no acquisitions of other companies.�

Electric power demand in the Rockies is expected to be robust this summer. But Questar will miss this summer�s power market.

�You would have to be already under construction or enter into an established permitted project,� he said. Questar, however, will be looking for opportunities with existing power projects. The company stressed that its expansion into the power sector would be regional and not broad in scope like the strategies of Enron Corp., Dynegy Inc., or El Paso Corp.

Pipeline plans
Besides power, the company is still pursuing two major expansion projects on its pipeline system. ML104 is a 75-mile intrastate pipeline with a capacity of 0.27/bcfd in Utah. The project will cost $80 million and is expected to be in service this year.

The other expansion involves Southern Trails pipeline to be built in two segments. The eastern segment is an interstate pipeline with a capacity of 0.8/bcfd originating in southeastern Utah and crossing through Arizona. Service is expected in 2002.

�We are negotiating with a major power producer for all of the current capacity of the eastern segment,� said Rattie.

The proposed western segment will connect with the eastern segment at the California and Arizona border and continue to Long Beach, Calif. But the western segment is far from reality, despite the need for additional capacity in California.

�The permitting process in California has been much more onerous and frustrating than we had anticipated,� said Rattie. �One big power project, Nueva Azalea, that would have been served by our pipeline threw in the towel recently.�

Among the biggest obstacles to getting the western segment of the Southern Trails pipeline permitted are the penalties imposed by Southern California Edison Co. on pipeline customers who leave that service to subscribe to the Southern Trails pipeline. Few customers are willing to switch. But the Southern California Edison system is operating at capacity, he said.

�There�s been a lot of finger pointing out there,� said Rattie. �There is not enough intrastate capacity in California�something that has been overlooked. California needs more power plants but also needs more pipeline capacity.�


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