El Paso plans pipeline expansion

By Kathy Helms
Diné Bureau

WINDOW ROCK — El Paso Corp. is looking to the future with one thought in mind: Keep it simple. Divest of power purchase and tolling agreements and focus on creating a pipeline to supply natural gas from the western United States to the East Coast.

Bruce Connery, vice president of Investor and Public Relations for El Paso Corp. in Houston, says the objective for El Paso "is to get to where we are pipelines, and then we have a market and trading business that really just handles the production that we generate."

El Paso currently is in negotiations with the Navajo Nation to renew a right-of-way lease for its existing 900 miles of pipeline across Navajoland.

In December, El Paso announced it had reached agreement to sell the majority of its remaining wholesale power trading portfolio to Morgan Stanley Capital Group Inc. for $442 million. On Dec. 8, El Paso announced the sale of its interests in four Chinese power plants for $70 million.

"We've sold probably $6 billion of assets since December 2003," Connery said. "We have some power assets, but a lot less than what we did two years ago. We're almost where we need to be."

One of the projects designed to position El Paso where it needs to be is a new natural gas transportation project called the "Continental Connector."

"The Continental Connector is designed to take some gas out of the Rockies, go down into Oklahoma and pick up Mid-Continent supplies, and then as this moves east, it can access virtually every pipeline in the eastern half of the U.S.," Connery said recently.

"Rocky Mountain and Mid-Continent supplies could go anywhere from Georgia, Florida, all the way up to New York and Boston," he said.

"There's an interest in customers having a diversity of supply and getting Rockies gas is part of that equation. The producers who are developing Rockies gas want an outlet for that gas to go to market. You're pipeline-constrained as you are right now."

Continental bridge
The great thing about the Continental Connector, according to Connery, "is it uses a lot of existing infrastructure. It bridges our pipeline systems but it also connects to a whole lot of other pipelines all the big ones.

"The bottom line is the Continental Connector can take Rockies gas and Mid-Continent gas and it can feed it to the eastern third of the country," said Connery, adding that El Paso supplies about a third of the natural gas that goes through the United States every day.

The company's regulated natural gas pipeline business generated $272 million in earnings before interest expense and taxes in third quarter 2005. The Continental Connector announced in October will connect El Paso's western pipelines with its eastern and southwestern pipelines.

Though the Continental Connector is feasible with as little as 1 billion cubic feet per day of commitments from shippers, Connery said that during the recent non-binding "open season," potential shippers put in requests for 3 billion cubic feet per day.

"That is an indicator that there is good interest in the project, and that we're in a position to move forward and go into this binding open season period, and then hopefully have a firm project that we can go forward with.

"It shouldn't be read that there are people that are ready today to make binding commitments," Connery said. "This is something that we're hopeful to get done in '06. As far as commitments, it's potentially ready to go during the winter of 2007-2008."

Connery said El Paso has more take-away capacity in the Gulf of Mexico than any other company. "We would say we have more access to supply than any other company given the breadth of our pipeline system.

"In the U.S. we access the key supply basins the Rockies, Gulf of Mexico, Texas, Louisiana, and we ship to most of the major consuming markets in the country," he said. Southern California Edison is one of El Paso's largest customers.

"We say we go from Bakersfield to Boston in terms of being able to access the country. Atlanta, New York, Philadelphia, New England we hit it all," he said. "The pipeline business, per se, just continues to be on a very nice growth trajectory and there's no let-up in sight."

Elba expansion
On Dec. 21, El Paso announced the expansion of its Elba Island liquefied natural gas receiving terminal near Savannah, Ga. That Phase III expansion will add 8.4 billion cubic feet of LNG storage and will more than double Elba's storage capacity. It also will add .9 billion cubic feet per day of send-out capacity.

In addition, unloading docks at the terminal will be modified to accommodate new, larger LNG ships during the Phase II expansion currently under way. "We have one of four marine LNG terminals in the country. It currently has one expansion under way and it will be done in February," Connery said.

In addition, an El Paso subsidiary will construct, own and operate a new 191-mile interstate natural gas pipeline with a total capacity of 1.1 billion cubic feet per day. The new pipeline, Elba Express, will increase natural gas transportation capacity from Elba Island to markets in Georgia and through interconnections with other pipelines to the Southeastern and Eastern United States.

Elba Express will run northwest, interconnecting with pipelines and customers along its route, and will consist of about 105 miles of 42-inch pipeline and 86 miles of 36-inch pipeline.

El Paso, Shell and BG LNG Services LLC, also have entered into long-term agreements for incremental storage and send-out capacity of the Elba Island Phase III expansion and transportation capacity for the Elba Express pipeline.

Shell intends to use its capacity to primarily import LNG from Qatar through its Qatargas IV project, also announced Dec. 21. BG, sole importer of LNG at Elba Island, will continue to source LNG from its portfolio of existing and future supply sources in the Atlantic Basin, including Trinidad, Egypt and Equatorial Guinea.

Connery said El Paso does not have an expansion planned for the San Juan Basin in New Mexico. "I think it's pretty much planned production out of the San Juan," he said, but added that the company is expanding its pipeline in the Raton Basin in Northeast New Mexico.

El Paso owns North America's largest natural gas pipeline system and is one of the country's largest independent natural gas producers