Pipeline could mean higher heating bills

The Associated Press
Aspen, CO Colorado

DENVER ” A pipeline that will take some Rocky Mountain natural gas to eager customers in the Midwest and East could mean higher heating bills in Colorado.

For years, a surplus of gas in the Rocky Mountains and not enough pipelines to ship it elsewhere have kept regional prices lower than in most other parts of the country, due simply to supply and demand.

That will change once the $4.5 billion Rockies Express pipeline, or REX, is completed. The pipeline, scheduled to be completed in 2009, will eventually stretch more than 1,600 miles from Rio Blanco County in western Colorado to Ohio.

Some estimates say that when the first major phase of the pipeline is scheduled to open in January from Weld County to Missouri, Rocky Mountain regional gas prices could nearly double, The Denver Post reported.

Xcel Energy didn’t have an estimate for the precise impact on customer bills, but the utility said consumers should be ready for an increase.

“We expect our prices to move up next year,” said Tim Carter, Xcel’s director of gas supply. Colorado regulatory law allows Xcel to pass along increases in natural gas prices to consumers, without taking extra profit.

Rockies gas recently has traded at $3 to $4 per thousand cubic feet, compared to the New York Mercantile Exchange futures price of $6.45 on Friday.

Lower prices can discourage some gas producers from launching aggressive exploration because they mean lower profit margins compared with competitors in other parts of the U.S.

“Right now, consumers are benefiting from lower natural gas prices, but the bad news is that the companies out there producing the gas are getting hurt,” said Porter Bennett, president and chief executive of Golden-based consultant Bentek Energy LLC.

Low prices also have reduced natural gas severance taxes for local governments in Colorado, Bennett said.

Denver-based PRB Energy Inc. said REX and the prospect of higher prices were key factors in deciding to begin a drilling program in the Denver-Julesburg basin of northeastern Colorado.

“Price improvement is critical if producers are to continue investing in the Rockies,” said Robert Wright, chief executive of PRB Energy. “REX is part of the solution for continued capital spending in the region.”

The pipeline will have a capacity of 1.8 billion cubic feet per day, more than twice Colorado’s entire daily consumption. It would increase the Rockies’ pipeline export capability by about 30 percent.

The project is a joint venture by Kinder Morgan Energy Partners, Sempra Pipelines and Storage, and ConocoPhillips.