The article "Quenching America's Thirst for Natural Gas" doesn't even mention Canada. What makes Americans think Canada will even permit such a pipeline through their country?

Jim Wright
Victoria, Canada

There is a lot of natural gas in the 'North Slope' underlying the now rapidly declining Prudhoe Bay oil field. However, it is a very long way from any market. The high capital and significant operating cost of a pipeline results in a 'delivered to market Chicago hub' price higher than market price--even today.

This 'un-economic to deliver' conundrum results in 'stranded gas'--proven, large amounts, but too expensive to utilize. Many very bright and experienced engineers and economists have struggled over 3 decades now with the ANS gas utilization problem. Potential solutions have ranged from:

None of these alternatives pass financial muster-so far.
What we DON"T need is Congress distorting the true economics by offering any 'incentives' for using this high cost gas. That would be a double first-cousin to the energy debacle of the corn-to-ethanol subsidy, which results in consumers paying twice the true economic value for the ethanol used in gasoline, with a few large companies getting all the economic benefits.

Let real market economics decide when, if ever, to produce and utilize ANS natural gas.

Keith E Bowers
Principal
B&B Consulting

If you take a clear overlay map of the Interstate gas pipelines and superimpose it over a map showing the major natural gas producing areas of the country, you'll see why oilmen refer to the natural gas producing industry as having been developed by pipeline geology! The one exception was Northwest Pipeline built by El Paso from New Mexico through Western Colorado, Eastern Utah and the State of Washington where it would pick up Canadian gas before curving south through Oregon to supply Northern California markets. In order to get local natural gas distributors (LDC's) in Colorado, Utah and Western Wyoming not to fight its application before the old FPC, El Paso agreed the Northwest Pipeline would not acquire newly developed gas in the LDC's areas except to supply the LDC's with peak load gas during winter months. This is why the Green River, Piceance, Uinta and Paradox Basins in Southwestern Wyoming, Western Colorado, Eastern and Southeastern Utah, which are mainly natural gas pro ductive, had not been developed until the gas shortages in California started showing up in the late 1990's.

Since 1960, the success record of major interstate gas pipelines designed, built and operated by natural gas people with the help of local politicians has been a dismal one since they attempted to follow the concept upon which Western Canada's TransCanada and West Coast Pipelines were successfully financed and built, i.e., build it despite minimal developed gas reserves being available because once its in place, it will encourage operators to find and develop more than enough reserves to keep the line filled! The TransCanada Line was justified based upon a reserve estimate of 4TCF for a Gulf Oil discovery in Southern Alberta than ended up having only 900MMCF of reserves!

The Transco Pipeline was conceived in the mid 1950's to serve the Atlanta area and justified based upon the great abundance of gas that would be available from the Gulf Coast, both onshore and offshore Louisiana. Unfortunately, for Transco the U.S. government which was given the right to set natural gas prices at the wellhead by the Supreme Court in 1955 came out with area wide wellhead gas pricing schedules in 1960 and they were set so low as to immediately kill major exploratory and development gas prospects. Throughout the 1960's and into the early 1970's the Transco line ran about half full and was only able to survive with additional financial support from Wall Street and high retail prices to Atlanta customers.

The TransWestern Pipeline from West Texas to Southern California built in the early 1960's to compete with El Paso's line to southern California based upon the supposedly huge gas reserves available in West Texas suffered the same fate as Transco except that within two years it was in Bankruptcy. With a $0.09/mcf government set wellhead price, no one was drilling for gas in West Texas while I was there in the late 50's and early 60's. El Paso ended up buying the pipeline.

Columbia Gas Transmission decided unwisely in the late 1970's, that rather than purchase its gas supplies from Tennessee Gas Transmission which had long term purchase and sale contracts with major oil companies controlling vast gas reserves in East and South Texas, it would build its own pipeline to the Gulf Coast. However, with long term, take-or-pay, natural gas contract prices in the late 70's, early 80's climbing to the $5-$7/Mcf area, Columbia was forced to agree to pay such prices to fill the line. When gas prices dropped like a rock in the mid-1980's, Columbia was caught with $billions in take-or-pay contracts leading it to file for bankruptcy in 1986.

I've not followed the economics of the most recent pipelines built from Western Canada into the U.S., but with Western Canadian gas reserves in decline and gas drilling activity this year at 50% of 2006 levels, I suspect those lines dependent upon unlimited Canadian supplies may similarly be in trouble because of poor reasoning.

Frank Horgos
F. A. Horgos Associates, Inc.

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