Is the natural gas pipeline infrastructure adequate to support all proposed new gas-fired generation plants? How many plants can it support?
The natural gas infrastructure in Arizona at this time largely consists of El Paso Natural Gas Company’s (El Paso) northern and southern interstate pipeline systems and associated laterals. The Transwestern pipeline in northern Arizona also serves a small amount of Arizona’s natural gas needs. Currently there are no appreciable instate natural gas production, natural gas storage, or liquid natural gas facilities in Arizona. Therefore, natural gas consumers in Arizona, whether residential or power generating in nature, rely on the on-going flow of natural gas on the interstate pipeline system to meet their service needs.
There is a general uncertainty regarding pipeline capacity availability for shippers on the El Paso pipeline system. The rights, obligations, and needs of shippers and El Paso are being disputed in a number of proceedings at the Federal Energy Regulatory Commission (FERC). At this time it is unclear how or when the disputes regarding pipeline capacity will be resolved.
However, it is clear at this time that during periods of high demand, the El Paso system is unable to fully meet the needs of its existing shippers. During periods of relatively low demand on the interstate pipeline system, it appears that the system is generally able to meet the needs of its shippers. This situation exists at a time when few of the new natural gas-fired generating units are yet operational. As additional gas-fired generating units come on-line in Arizona and other southwestern states that utilize the same pipeline systems, the inability of the existing pipeline system to serve all customer demands will become increasingly apparent.
El Paso has failed to address the growing demands for natural gas transportation in Arizona and the Southwest. New generating facilities appear to be relying on a number of possible sources of pipeline capacity for their facilities, including: use of existing contract rights, acquiring released pipeline capacity from other shippers, purchasing rights on new pipelines or pipeline expansions, and swapping of gas supplies on different pipeline systems. In the long term, market players are likely to build additional pipeline capacity and/or natural gas storage capacity to serve additional demand for natural gas in Arizona and the Southwest. However, it is unclear at this time how well the availability of additional pipeline capacity in the future will coincide with the additional natural gas demand of the new generating facilities in the next few years. The on-going uncertainty regarding existing shippers rights on the El Paso system has made it difficult for both shippers and potential capacity expansion developers to accurately gauge what the demand/need is for additional capacity. Most new gas-fired generating units in Arizona are located near El Paso’s southern pipeline system, and this is likely to be the area of greatest concern regarding the shortfall of interstate pipeline capacity, although several recently announced pipeline projects may at least partially address the shortfall.