Ken Silverstein EnergyBiz Insider Editor-in-Chief

Pipeline maps indicate that natural gas comes out of the Rockies and into the Midwest. Gas also comes out of the Gulf Coast and into the Midwest and Northeast. But natural gas doesn't move from the Rockies to the east. Simply put, the capital and endurance to do so have been overbearing - until now. The Northeast needs new supply and dependable storage and companies such as Kinder Morgan and Sempra have the capital behind them to push for these projects.

That's why the Kinder Morgan-Sempra proposition has legs. But, to get the deal done, it takes lots of capital and firm commitments from natural gas suppliers. In this case, EnCana Marketing USA has signed a binding agreement for 500 million cubic feet a day of natural gas capacity on the proposed 2 billion cubic feet per day Rocky Express Pipeline. Others such as Chevron Corp. have inked similar deals with the pipeline consortium. Meantime, the Federal Energy Regulatory Commission has granted a request by the gas companies to initiate a pre-filing process for one aspect of the development.

"The commitment from EnCana, one of North America's largest natural gas producers, demonstrates the necessity and viability of the Rockies Express Pipeline Project, which will provide a solution for delivering long-life, domestically produced, natural gas to the Midwest and Northeast," says Kinder Morgan Energy Partners CEO Richard Kinder. That maximizes the value growing Rocky Mountain production, he adds.

Clearly, the time is right to build pipelines and to move that gas from the Rockies to the Northeast, says Robert Lane, vice president of Sanders Morris & Harris in Houston. Natural gas is a lot cheaper in the Rockies than anywhere else, he says. And since the Northeast needs new supply and more dependable storage, the gas companies are providing a valuable market need by building the pipeline.

"If you can take cheap gas from the Rockies to the Northeast, you are making money," says Lane. "That's the bottom line. That arbitrage -- price difference -- will begin to disappear over time but shippers will still make money. And Kinder Morgan and Sempra are used to going through the permitting and know how to go about it."

Residential customers and industrial enterprises will be beneficiaries. The price differential in disparate parts of the country will gradually disappear. That's the nature of open markets and providing more opportunity for suppliers. Lane says it will also lead to more price stability.

No Guarantees

The same business case now being made for the Rocky Mountain Express can also be applied to the $24 billion Alaska Pipeline. It may finally get built because gas suppliers, regulators and state taxpayers appear to have come to an agreement on the finer points. The pipeline would be a 3,400-mile project that would send 4-5 billion cubic feet per day from Alaska's North Slope to the Lower 48. The fields where the gas is found holds 35 trillion cubic feet of known reserves and would undoubtedly help serve America's energy needs. Some experts say the region holds even more natural gas resources.

"Our mandate is to streamline the regulatory processes once we get the paperwork," says Robert Cupina, a key regulator with the Federal Energy Regulatory Commission. At the same time, federal regulators are actively permitting liquefied natural gas (LNG) facilities that -- if they get built -- will be along the Gulf Coast. The expected resources will get shipped up to the Northeast that needs all the energy supplies it can get.

None of these proposals is a guarantee. Court challenges abound. Opponents to them are protesting any further dependence on fossil fuels that have a finite future such as natural gas, with an estimated 60 years of reserves. The current high prices provide the incentive to develop renewable resources like wind and solar, they say.

Meantime, some projects have not done as well as hoped. Take the Southwestern United States, which is the fastest growing area of the country: It is supplied with fuel from just a few areas of production that include the California coast and Canada. Onlookers know about the Longhorn Pipeline that begins in Texas and stretches to those starved areas. Developers went ahead with the project without getting firm commitments up front. So, despite the market need, developers are still stretched thin on this one.

"The permitting and regulatory issues are the issues driving where natural gas pipelines and LNG facilities are getting built," says Pete Tumminello, senior vice president for Sequent Energy Management that is the unregulated transportation and storage division of Atlanta Gas Light. "The market will rationalize which are the best projects."

New pipeline and storage projects will mitigate prices, he says. The seemingly favorable conditions at the moment bode well for new development, although he cautions to developers to ensure their projects are fully developed before they start. And while cross-country projects such as the one that Kinder Morgan and Sempra are undertaking are getting lots of attention, Tumminello says that the deals that fit regional needs will do the best because they don't require enormous amounts of capital.

The outcry created because of market volatility and high natural gas prices has given pipeline developers a reason to be positive. Those enterprises that seek to deliver gas from where it is abundant and cheap to where new supplies are critical are quickly becoming the industry's new pace-setters. But, unlike earlier eras where companies saw needs and dived right in, the new way of doing business demands getting early regulatory approval along with that the capital and commitments that are necessary to get rolling.

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