Southwest to need more pipe capacity --Analyst

Southwest to need more pipe capacity --Analyst

london (Platts)--11Aug2006

An influx of liquefied natural gas to Southern California could prompt the
need for additional pipeline capacity out of the San Juan Basin, an energy
analyst said this week.

Walter "Skip" Simmons, a principal with Wood Mackenzie, said an LNG terminal
Sempra Energy is developing on the coast of Mexico's Baja California will
bring up to 1 Bcf/d to northern Mexico starting in early 2008 ? much of which
would be piped to Southern California.

"In our modeling, California absorbs quite a bit of that LNG over time," he
told the Rocky Mountain Natural Gas Strategy Conference in Denver. "Then
something has to give because the California market is flat into the future."

He said the two existing Permian Basin transportation systems ? Transwestern
Pipeline and El Paso Natural Gas ? already are moving as much incremental gas
from California as they can, meaning any new supplies "will be pushed back to
the San Juan pipes."

That gas will need a way out of the San Juan and "if it looks north, it has no
place to go," Simmons said. As a result, 300,000 Mcf/d to 400,000 Mcf/d of new
capacity south and east likely will be needed "to keep that gas flowing."

"All we're trying to do is alert the San Juan producers that, 'You've survived
by serving the California market, and you're serving some markets to the east.
But if all of a sudden LNG becomes more prolific on the West Coast, you've got
to be aware that you're going to be in the swing position,' " Simmons said.

The new capacity requirements are "not huge, but enough to ensure that we
don't have gas pushing back into the basin with no place to go," he added.

Simmons also updated conference attendees on proposed pipelines designed to
move gas from the Rocky Mountains to other markets, asserting that Wood
Mackenzie is "very bullish on the Rockies."

He touted Rockies Express ? a $4.4 billion, 1.8 Bcf/d capacity system planned
from Wyoming to eastern Ohio and possibly to Oakford, Pennsylvania ? as the
region's first "producer-push" pipeline. The mega-pipeline is sponsored by
Kinder Morgan Energy Partners, Sempra Pipelines & Storage and ConocoPhillips
(GD 7/20).

"The producers have said, 'I don't really want to go to Chicago. Chicago is
over-piped and there is sufficient supply in Chicago. I want to get my gas to
where it can flow and I can get the highest value," ' Simmons said.

With the completion of Rockies Express in 2008, the Cheyenne Hub will be about
54% utilized, making almost half of its capacity available for new Rockies gas
scheduled to come on stream over the next few years. "The message for Rockies
producers is, 'Get your gas to Cheyenne,' " Simmons said.

He compared Rockies Express to the Alliance Pipeline, which was built in the
late 1990s in response to Alberta producers' desire to get their gas to
Chicago. "Rockies Express is building into premium markets in the East," he
said. "This pipeline is the hedge."

From a market standpoint, Simmons predicted "a near-term price dip between now
and Rockies Express coming online in 2008." He noted that Entrega Gas Pipeline
? a 327-mile project from Rio Blanco County, Colorado, to the Cheyenne Hub
being built in conjunction with Rockies Express ? is expected to start service
next year.

"If Entrega gets built by 2007 but takeaway capacity is not built until 2008,
you can get a lot more gas to Cheyenne, but you can't get it away from
Cheyenne," he said. "That capacity is only going to get tighter."

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