Under the MOU, EnCana Marketing (USA) Inc. has agreed to negotiate with the Kinder Morgan-Sempra Energy project for firm transportation capacity on the pipeline during an upcoming binding open season. The deal, subject to execution of definitive agreements and to approvals from the respective parties' boards of directors, is expected to make EnCana Marketing (USA) Inc. a significant anchor shipper on the new project.
"EnCana's commitment goes a long way toward making this project a reality," said Scott Parker, president of Kinder Morgan's Natural Gas Pipelines Group. "Projects are proposed and open seasons are conducted frequently, but pipelines don't get built without real shipper support like we have received from EnCana, Sempra Energy and the Wyoming Natural Gas Pipeline Authority." EnCana's affiliate, Entrega Gas Pipeline Inc., recently commenced construction of a 330-mile 36 to 42-inch pipeline linking growing western Rockies production areas to the Cheyenne Hub in northeastern Colorado. Under the terms of the MOU and subject to final negotiations, it is contemplated that the Entrega Gas Pipeline would be sold to the Kinder Morgan-Sempra Energy project group. In combination, the Entrega Gas Pipeline and the Kinder Morgan-Sempra Energy pipeline project have the potential to create a major new gas transmission pipeline from the Rockies to eastern markets. Under a previous agreement, Entrega contracted Kinder Morgan to operate the Entrega Gas Pipeline, and Kinder Morgan will now market the available capacity on the project.
"The Rockies Express Pipeline should serve as a great benefit to both producers in the Rockies region and for U.S. consumers relying more and more on secure domestic energy sources," said George Liparidis, president of Sempra Pipelines & Storage. "We believe that other producers, local distribution companies and marketers will follow EnCana's lead in committing to development of infrastructure to transport reliable Rocky Mountain natural gas supplies to Midwest and East Coast markets."
As designed, the preliminary route of the Rockies Express Pipeline will originate at the Cheyenne Hub in northeastern Colorado and extend to eastern Ohio with an ultimate route to be selected based on shipper interest. The proposed 42-inch diameter pipeline will have capacity of up to 2 billion cubic feet per day. Conditional commitments now account for approximately one-half of the pipeline's total capacity and strong interest has been expressed for additional capacity from other parties. The commitments and indications of interest from parties other than EnCana Marketing (USA) Inc. include:
* The Wyoming Natural Gas Pipeline Authority (WNGPA) has entered into an exclusive agreement with KMP and Sempra Pipelines & Storage regarding an MOU that could result in the WNGPA contracting for up to 200 million cubic feet per day (MMcf/day) on the pipeline and extension of the project upstream to the Opal Hub in Wyoming.
* Five Midwest local distribution companies and one power generating company have entered into exclusivity agreements for the project.
* A Sempra Energy affiliate has agreed to bid for 200 MMcf/day of firm transportation capacity.
In light of the significant commitments to the project already received, the sponsors intend to file with the Federal Energy Regulatory Commission to request commencement of the National Energy Policy Act pre-filing process this month.
The pipeline will maximize the value of growing Rockies production by creating unprecedented access to multiple markets and storage, while providing markets in the upper Midwest and Eastern United States with direct access to reliable, long-lived domestic natural gas supplies to meet growing demand. Along with providing producers much-needed takeaway capacity, the pipeline will feature multiple interconnects with other major pipeline systems and create significant flexibility for reaching other demand-anchored markets. Producers will also be able to more effectively address the price differential between Rocky Mountain basins and the demand centers to which the pipeline will ultimately deliver the gas to.
Kinder Morgan and Sempra Pipelines & Storage are sharing responsibility for development activities. Kinder Morgan owns two-thirds of the equity in the proposed pipeline and Sempra owns one-third. Pending customer commitments and regulatory approval, the proposed pipeline is projected to be staged into service in late 2007 and continuing through 2009.
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