By the OGJ Online Staff
HOUSTON, May 2 -- Kinder Morgan Energy Partners LP and independent power producer Calpine Corp. Wednesday reported plans to jointly develop a 1,160-mile, $1.7 billion pipeline that would deliver gas to California from the San Juan Basin in New Mexico.
As proposed, the high-pressure Sonoran interstate natural gas pipeline project would have a maximum capacity of 2.5 million dekatherms/day (Dth/day). Sponsors said the proposed pipeline will provide much-needed natural gas transportation capacity to California to serve rapidly growing electric generation demand.
In addition, producers will be able to move more natural gas from the San Juan to California consumers. Access to these abundant natural gas supplies has been constrained due to a lack of pipeline infrastructure, the sponsors said.
Calpine Energy Services LP, a unit of Calpine Corp., San Jose, Calif., has already entered a firm bid for 400,000 Dth/day for the first phase of the project and a nonbinding bid for 500,000 Dth/day for phase two.
Fred Schultz, an electricity analyst with Raymond James & Co., said conditions are right for infrastructure projects, and the strength of the Sonoran's sponsors give it a high likelihood of success. "Kinder Morgan has a pretty strong track record," he said.
The reemergence of long-term supply contracts is giving infrastructure projects a boost, Schultz said. He noted the pipeline will serve a market where power plants are already under construction. With two of three of a trifecta under way -- power plants and gas pipes -- Schultz predicted companies will be announcing the third leg -- power lines -- before yearend.
The interstate Sonoran pipeline will be evaluated and developed in two phases, which will be subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC). Sonoran expects to utilize existing right-of-way corridors as much as possible to minimize potential environmental impact, the companies said.
The first phase will run from the San Juan Basin to the California border, with the second phase extending from the California border to the San Francisco Bay area. The first phase of the pipeline is expected to be completed in the summer of 2003.
Richard D. Kinder, chairman of Houston-based Kinder Morgan (KMP), said the project will enable the company to grow its core business by extending its natural gas transportation service into new markets. The company doesn't transport gas into California, but it owns and operates the largest independent products pipeline on the West Coast, headquartered in Orange, Calif.
It also is a major transporter of natural gas through its Natural Gas Pipeline Co. (NGPL) of America unit. NGPL operates a 10,000-mile pipeline system serving the key Chicago market and the states of Illinois, Iowa, Wisconsin, Indiana, Missouri, Arkansas, and Texas. Kinder Morgan Power Co. also has plans to have 3,850 Mw of new construction in service by second quarter of 2004.
Diversified gas supply
"We will utilize our expertise as a major natural gas pipeline operator and transporter to build the Sonoran pipeline, and we look forward to expanding our relationship with Calpine, one of the leading power plant developers in America," Kinder said in a prepared statement.
Calpine CEO Pete Cartwright said the Sonoran pipeline will help ensure a diverse supply of gas to existing power plants California. The company is adding 9,000 Mw of capacity. Cartwright said it is essential for Calpine to have a dependable, competitively priced source of natural gas.
"This important new pipeline will allow us to better control our costs in the California market to help lower energy prices and build needed generation," he said in a statement. To date, the company has 31,200 Mw of base load capacity and 6,800 Mw of peaking capacity in operation, under construction, and in announced development in 28 states and Canada.
Phase one of the project will consist of 460 miles of 36-in., high- pressure natural gas interstate pipeline originating from interconnects with TransColorado Gas Transmission Co., Transwestern Pipeline Co., and various points at the Blanco Hub in San Juan County, NM, near the Colorado- New Mexico state line.
The pipeline will continue westward with delivery points on the California/Arizona border near Needles with a 20-mile, 24-in. lateral to Topock. The pipeline will initially transport up to 750,000 Dth/day and can be expanded with compression to transport up to 1 million Dth/day.
A binding "open season" will be held in May and potential shippers will be given the opportunity to commit to firm capacity on the new line, sponsors said. Given sufficient shipper support in the open season, Sonoran Pipeline LLC (Sonoran) proposes an in-service date in the summer of 2003.
The estimated cost of phase one of the project is approximately $624 million. Sponsors said the open season will seek at a minimum, 20-year term commitments at a fixed transport rate of 39¢/Dth for firm transportation. Sonoran proposes to charge shippers actual fuel on phase one via a fuel tracker. Fuel is estimated at 1.3%.
Phase two will consist of 590 miles of 36-in. and 42-in. high-pressure interstate natural gas pipeline continuing from Needles on the California border to points within California, terminating near Antioch in Contra Costa County. Depending on shipper interest, phase two will transport from 1 million-1.5 million Dth/day.
A nonbinding "open season" will be held on phase two simultaneously with the phase one open season, and potential shippers will be given the opportunity to express interest in obtaining firm capacity to California delivery points. Sonoran has already received a nonbinding bid from Calpine Energy Services for 500,000 Dth/day for phase two. The estimated cost is of phase two is $1.1 billion.
