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Transwestern Pipeline Company
Transwestern Pipeline CompanyStatus of San Juan Expansion
&Sun Devil Lateral
February 2004
www.crosscountryenergy.com
2
Transwestern Pipeline Company
Available Capacity to Serve AZ
Texas
Oklahoma
Colorado
New MexicoArizona
Utah
Nevada
California Ignacio
Blanco Hub
NeedlesTopock
Station9
SAN JUAN
ROCKIES
PERMIAN
ANADARKOThoreau
San JuanArea
West of ThoreauArea
East ofThoreau
Area
Supply BasinsRate Areas
Panhandle North
West Texas North
•Phoenix
• Mainline West Capacity of 1,210 MMcf/d. 700 MMcf/day of Mainline West capacity and 350 MMcf/day of San Juan capacity available, subject to ROFR in 2005-2006
• Current Expansions: TW preparing FERC certificate application to expand San Juan capacity by 375 MMcf/day with a mid-2005 in-service date.
• Proposed Expansion: TW is planning a 170 mile lateral from its mainline near Flagstaff to the Phoenix market, capable of flowing 500+ MMcf/day without compression and up to 1.2 Bcf/d with compression.
3
Transwestern Pipeline Company
Gas Supply Access• Since 1998, total reserves in the four major supply basins served by TW
have risen dramatically.
Source: Lippman Consulting
Transwestern Supply Basin Analysis
0
20
40
60
80
100
120
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Tril
lion
Cub
ic F
eet
Permian Reserves
San Juan Reserves
Rocky Mountain Reserves
Mid-Continent Reserves
4
Transwestern Pipeline Company
San Juan Basin - Reliable Resource Base
• San Juan basin is one of the largest natural gas basins in the United States.
• San Juan total reserves and reserve life (15 years) continue to increase.
• Most active producers include: Devon, BP, Burlington, ConocoPhillips, & XTO
San Juan Basin Reserves
0x
5x
10x
15x
20x
25x
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Res
erve
Life
Ind
ex
0
5
10
15
20
25
Yea
r E
nd R
eser
ves
TC
F
San Juan Basin Year-End Reserves Reserve Life Index
Source: Lippman Consulting
5
Transwestern Pipeline Company
San Juan Basin – Economically Attractive
Monthly Gas Index Prices Since the Kern River Expansion
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03
Dol
lar
per
MM
btu
San Juan Permian Rockies Malin Henry Hub
• San Juan gas has been the most economical source of major natural gas supplies for Southwest markets.
• The San Juan gas price has remained more competitive vs. Permian & Rockies despite the Kern River expansion.
• Approximately 61% of gas shipped by TW in 2003 was from the San Juan Basin.
“Rockies" = Inside FERC Northwest Pipeline Rocky Mountain First of the Month Index (FOM Index), "San Juan" = Inside FERC San Juan FOM Index, "Permian" = Inside FERC Permian FOM Index, "Henry Hub" = Settlement Price on Last Day of trading for that month's NYMEX futures contract, "Malin" = Natural Gas Intelligence Malin FOM Index.
6
Transwestern Pipeline Company
San Juan Basin - High Utilization• All pipeline capacity for the San Juan Basin is fully contracted.
• TW’s San Juan lateral is 100% utilized.
Total Regional Export Capacity
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Jan-01
Feb-01
Mar-01
Apr-01
May-01
Jun-01
Jul-01
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
Jan-02
Feb-02
Mar-02
Apr-02
May-02
Jun-02
Jul-02
Aug-02
Sep-02
Oct-02
Nov-02
Dec-02
Jan-03
Feb-03
Mar-03
Apr-03
May-03
Jun-03
Jul-03
Aug-03
Sep-03
Oct-03
MM
cf p
er d
ay
Actual Export Export Capacity
TRANSWESTERN SAN JUAN EXPORTS
Source: Lippman Consulting
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Transwestern Pipeline Company
Impact of Rockies Imports + San Juan Production Growth on Export Capacity
0
500
1,0001,5002,000
2,5003,0003,500
4,0004,500
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
MMCF/D
Capacity = 4,050 MMcf/dCapacity = 3,960 MMcf/d
Assumptions:Rockies imports, plus Bondad expansion, plus 1% San Juan production increaseSource: Lippman Consulting
8
Transwestern Pipeline Company
TW San Juan Expansion is the Best Way to Relieve the Constraint at Blanco
• Existing infrastructure allows lower scale expansion (375 MMcf/d).
• Least cost expansion alternative.
• Can easily be scaled up to handle more volumes in the future by adding HP.
• Low execution risk:
• Experienced project manager.
• Certificate is ready for filing at FERC.
• Tentative Navajo ROW arrangements.
• Market flexibility – East and West markets.
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Transwestern Pipeline Company
Proposed San Juan Expansion
Bloomfield CS15,000 Hp Add
72 miles Of 36” loop
Bisti CS 1,500 Hp Add
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Transwestern Pipeline Company
Sun Devil Lateral
Ignacio
Blanco
Permian
Anadarko
Thoreau
San Juan
California
Phoenix
Existing TW systemSun Devil LateralSan Juan ExpansionEl Paso Natural Gas
TW Sun Devil Lateral - 500+ MMcf/d - 170 miles of 36” line, no compression - Deliveries to industrials, power generators, LDC’s and El Paso south system
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Transwestern Pipeline Company
Comparative Total Delivered Gas Cost 1)2005 2006 2007 2008
Transwestern Blanco to Phoenix:
Gas Cost - San Juan $4.588 $4.312 $4.204 $4.170Commodity + ACA + GRI $0.0225 $0.0225 $0.0225 $0.0225Reservation $0.4150 $0.4150 $0.4150 $0.4150
Illustrative Fuel @ 2.0% $0.094 $0.088 $0.086 $0.085Total Cost @ 2.0% Fuel $5.119 $4.837 $4.727 $4.693
El Paso Permian to Phoenix:
Gas Cost - Permian $4.939 $4.655 $4.539 $4.506Commodity + ACA + GRI $0.0291 $0.0291 $0.0291 $0.0291Reservation $0.25975 $0.25975 $0.25975 $0.25975
Fuel @ 3.2% $0.163 $0.154 $0.150 $0.149Total Cost @ 3.2% Fuel $5.391 $5.098 $4.978 $4.944
KM Silver Canyon Blanco to Phoenix:
Gas Cost - San Juan $4.588 $4.312 $4.204 $4.170Commodity + ACA + GRI $0.0175 $0.0175 $0.0175 $0.0175Reservation $0.4900 $0.4900 $0.4900 $0.4900
Fuel @ 1.38% $0.064 $0.060 $0.059 $0.058Total Cost @ 1.38% Fuel $5.159 $4.880 $4.770 $4.736
Kern/El Paso Opal to Daggett to Phoenix:
Gas Cost - Rockies/Opal $4.592 $4.245 $4.151 $4.124Kern Commodity + ACA + GRI $0.064 $0.064 $0.064 $0.064Kern Reservation (2003 Expansion Rate) $0.5831 $0.5831 $0.5831 $0.5831
Kern Fuel @ 1.89% $0.088 $0.082 $0.080 $0.079Total Cost to Daggett @ 1.89% Fuel $5.327 $4.974 $4.878 $4.850
El Paso Commodity + ACA + GRI $0.0197 $0.0197 $0.0197 $0.0197El Paso Reservation $0.30863 $0.30863 $0.30863 $0.30863
El Paso Fuel @ 0% $0.000 $0.000 $0.000 $0.000Total Cost to Phoenix @ 0% Fuel $5.656 $5.302 $5.206 $5.179
1) Gas Costs based on 1/28/2004 quotes from trader/major customer.
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Transwestern Pipeline Company
TW Sun Devil Lateral is the Best Wayto Achieve Gas-on-Gas Competition for
Phoenix• Lowest Capital cost requirements
• $250mm vs $750mm for Kinder-Morgan
• 170 miles vs 455 miles
• Lower project cost = lower execution risk = lower cost to AZ ratepayers
• Leveraging existing infrastructure allows smaller scale expansion to get started (500 MMcf/d).
• No compression initially required.
• Able to utilize existing unsubscribed mainline capacity.
• TW’s Sun Devil Lateral provides to Phoenix:• Experienced, safe, reliable pipeline alternative
• Competitive pricing
• Access to multiple gas supply sources
• Promotes gas-on-gas competition
13
Transwestern Pipeline Company
ACC Action Items
• Support the efforts of your customer base to access lower cost gas supplies• Arizona electric utilities
• Arizona gas utilities
• Large industrial users
• Merchant power generation model is dead• TECO / Gila Bend
• Promote development of utility infrastructure corridors using existing highway, railroad, and power line ROW• Minimizes environmental damage
• Minimizes private landowner involvement
• Promote and support ROW Quick-take legislation• Iowa
• Utility establishes eminent domain condemnation rights via court petition, posts bond
• Judge appoints 3-person independent commission to hear case
• Right-of-way costs established and landowner compensated within 30 days
• Provides surety of construction timeline and avoids litigation delays