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Enbridge wants to build gasline from the Powder River basin to Chicago
Steve Sutherlin, Petroleum News associate editor
Calgary, Alberta-based pipeline company Enbridge Inc. says it wants to build a high-volume natural gas pipeline from northeastern Wyoming to Chicago, Ill.
The line would carry up to a billion cubic feet of gas per day from the Powder River basin to gas-hungry Midwestern U.S. markets, and would cost $1 billion to build, Jim Rennie, Enbridge director of media relations, told Petroleum News July 2.
The state of Wyoming and producers are losing millions of dollars per day, in the aggregate, because of poor transportation access to market caused by inadequate pipeline infrastructure, according to a study commissioned by the Wyoming Natural Gas Pipeline Authority. Competition between producers for limited gas pipeline capacity has caused basis differentials to be larger than the cost of transportation to markets, the study said.
The study, released Feb. 7 by Pace Global Energy Services LLC, said a gas line to Chicago would be a boon to Wyoming producers because it would offer direct access to a market twice the size of the entire California market.
The Wyoming legislature recently increased the bonding authority of the pipeline authority to $1 billion, to encourage new pipelines and upgrades to existing pipelines that carry Wyoming gas to consumers.
Rennie said Enbridge appreciates the state's enthusiasm, but the prospect of public financing wasn't a driving factor in the company's decision to pursue the project.
“It was more a case that we see an opportunity on a supply and demand basis,” he said. Enbridge has been strengthening its balance sheet over the last year and a half, and it is capable of handling a $1 billion project by itself, Rennie said. The company is in the process of assessing interest from producers and customers for the gas. If response is favorable, the line could be in service by 2007. New pipeline capacity trims price differential When an expansion the Wyoming-to-California Kern River pipeline came on line May 1, the added capacity had an almost immediate effect on the price differential between Wyoming and market hubs, according to Rod De Bruin, head of the Oil and Gas Section of the Wyoming State Geological Survey.
“We have a problem with a price differential between Wyoming and the Henry Hub,” De Bruin said. “It was several dollars last winter, now it is less than one dollar.”
The Kern River line went into service in 1992 with a capacity of 700 million cubic feet per day, and was later upgraded to 1 billion cubic feet per day with added compression, De Bruin said. The most recent expansion involved looping the existing line for an addition of 700 million cubic feet per day.
The extra capacity filled in about a week, he said.
The Kern River line helped the southwest part of the state, and the Enbridge line would help the northeastern region, De Bruin said, adding that the Powder River shallow coalbed methane field will expand, and it will need more capacity. The state recently approved the drilling of 50,000 more wells in the area. Currently Powder River has 11,000 wells producing 1 billion cubic feet per day, a production level that is maxing the current takeaway capacity. Chicken or the Egg? Historically, pipeline proposals to take Wyoming gas to the Midwest have been stymied by a reluctance of producers to increase production without additional takeaway capacity, while pipeline capacity has been constrained by reluctance of transportation companies to build lines without excess production in place, De Bruin said.
Rennie said Enbridge is aware it can't expect the producers to take the risk on the pipeline; it knows that in today's market the company will have to at some point take a leap of faith and build the line.
“The old days of having firm contracts in hand before building a line are past,” he said.
The Pace report said disarray in the pipeline industry since the Enron collapse has made it harder to launch a pipeline project, just as production levels in Wyoming are set to rise. Since Enron, most of the pipeline companies have dramatically downsized.
The report also said a problem with achieving such investment is that many energy companies' credit ratings have suffered since the Enron collapse.
Rennie said his company's credit didn't suffer because it wasn't involved in energy trading; it specializes in energy transportation and distribution.
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