Pipelines proposed through Arizona
Natural-gas need spurs expansion

Max Jarman
The Arizona Republic
Jun. 30, 2004

Houston pipeline operator Kinder Morgan Energy Partners is proposing to build a pipeline through Arizona that would help assure a steady supply of natural gas at reasonable prices. Kinder Morgan also is expanding its network of gasoline pipelines in the state.

The so-called Silver Canyon Pipeline would extend from natural gas fields in northwestern New Mexico to Blythe, Calif., passing through Maricopa County and skirting the Valley to the north and west.

Its one of several proposed pipelines that could serve the Phoenix area.

Another proposal, by Transwestern Pipeline Co., would connect the Valley with the company's east-west pipeline in northern Arizona.

Central Arizona is now served by one natural gas pipeline, owned by El Paso Natural Gas Co. The limited capacity on that line and burgeoning demand in the Southwest have contributed to volatile natural gas prices. Arizona business and homeowners pay some of the highest natural-gas prices in the nation.

Wholesale natural gas prices have stayed near $6 per million British thermal units for much of the past two years after selling for $2 for most of the past decade.

"It hasn't been easy to deal with the consumer impact of the higher natural gas prices of recent years," Arizona Corporation Commission Chairman Marc Spitzer said.

While El Paso has plans to increase capacity on its line, Spitzer said even more capacity is needed.

"What we see here is the supply industry, the utility industry and ratepayer groups in full agreement that something must be done to increase supply," he said of the Kinder Morgan project.

Silver Canyon President Steve Harris said the line could be in service by 2006. But before the company files with the Federal Energy Regulatory Commission for clearance to build the line, Harris said there would be meetings with landowners, community officials, the Bureau of Land Management and other entities to determine the optimal route for the line.

Potential pipeline customers would be large natural gas users such as Southwest Gas Corp., Salt River Project and Arizona Public Service Co. Southwest Gas distributes natural gas to about 840,000 customers throughout Arizona, but owns no gas wells of its own. As a result, the company must purchase natural gas on the wholesale market and pay a pipeline company to ship it to Arizona.

The electric utilities increasingly use natural gas as fuel for their power plants.

"We support any project that brings additional gas into the area," said Salt River Project spokesman Scott Harelson.

The companies now receive natural gas over the El Paso pipeline. Previously they had open-ended contracts that allowed them to take as much gas from the pipeline as they needed. Now their supply has been capped to accommodate customers at the end of the line in California. That has the Arizona companies concerned that they might not be able to accommodate future growth or could be forced to pay high prices to secure the extra fuel they need. Those costs could be passed on to ratepayers.

"If Arizona utilities and natural gas users have more supply options, the resulting competition could bring lower costs," said Heather Murphy, a spokeswoman for the Arizona Corporation Commission.

On June 24 the commission voted to allow Southwest Gas Corp., which has agreed to purchase capacity on the new Kinder Morgan line, to recover those shipping costs from consumers.

The commission's decision advances the pipeline project because it provides funding for Southwest's contract and guarantees a source of revenue for Kinder Morgan.

Before pipelines are constructed, developers hold an "open season" to see which natural gas users would buy capacity.