The project could end up somewhat smaller, depending on how much capacity is reserved before construction, but the companies say the 2400-km, 42-in diameter, line could have a capacity of 2 billion cuft/d. “We won’t build something in the hopes that it gets used,” said Kinder Morgan spokesman Rick Rainey. “We would need firm contracts in place beforehand.”
The pipeline would start at the Wamsutter Hub in SW Wyoming and run to eastern Ohio. Gas exploration and production in the Rockies has grown in recent years partly because of higher commodity prices and expedited permitting by federal regulators. In 2003, Rocky Mountain production was 27% of the total onshore production in the lower 48 states, according to the US Energy Information Administration; by 2025, it is expected to increase to 38%. But unlike gas produced in the Gulf Coast region, which reaches many parts of the country via a well-established pipeline network, Rocky Mountain gas doesn’t travel very far, said Robert Lane, a vice president at investment bank Sanders Morris Harris. With the Midwest and Northeast seeing natural gas prices much higher than those available in the Rockies, linking those buyers and suppliers via a large interstate pipeline makes sense, Lane said.
“I wouldn’t say Kinder Morgan and Sempra are the first out of the box to recognize the need to get gas out of the Rockies, but this is the most ambitious project I’ve seen,” Robert Lane said.
While high prices certainly make Rocky Mountain producers eager for ways to get their products to more markets, Rick Rainey said the project is not built upon certain price levels, although Sempra has already said it will take up to 200,000cuuft/d of the pipeline’s capacity. The companies will hold a so-called “open season” for the pipeline later this year, when companies can bid for future capacity. Once that is complete and all the necessary regulatory approvals are received, operations on the pipeline could begin by the end of 2008. The pipeline will be an all-new construction, and will tie-in to many existing pipelines and storage facilities, Rainey said.
Kinder Morgan will own two-thirds of the project, financed with 60% equity and 40% debt. The company, one of the US’s largest publicly-traded master limited partnerships, owns 40,000km of pipeline and 145 liquids and dry-bulk terminals. Its parent company, Kinder Morgan Inc, announced a $3.1-billion deal earlier this month to acquire Canadian pipeline firm Terasen.