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Transportation investment needed to get the most out of Rockies gas

The U.S. Rocky Mountain region could anchor a resurgence ofinvestment in natural gas pipeline projects in the West if gas demandincreases, but pipeline operators will have to find new customers and changetheir systems.

"If you look at a map of the Western states, there is alot of pipe out here, and there is a lot of pipe that's not doing much,"said Matt Sheehy, president of RockiesExpress Pipeline LLC, in an Oct. 11 keynote speech at an industryconference.

"So now's the time for you guys to shine," he toldthe audience.

Other industry observers at the LDC Gas Forum for theRockies and West in Denver suggested the Rockies region would have to makebetter use of gas transportation infrastructure because of a potential pickupin demand. According to Jim Duncan, chief analyst and commoditymarket strategist for ConocoPhillipsCo., forces that could drive market growth include the growingdemand for power and the push toward renewable energy. States likeCalifornia are moving toward greater reliance on renewables, and gas-fueledpower generators will provide backup.

Duncan described "the emergence of renewables and morepower demand than we've seen probably in our history."

A certain amount of renewable power could benefit theRockies region, but ICF International Vice President Kevin Petak warned thatrenewable generation growth will eventually displace gas across the country.

"That's a good news/bad news story for natural gas,"Petak said.

The abundance of shale gas in the U.S. has alteredtraditional flows within the U.S., a trend that Sheehy said is moving westward.With traditional supply basins changing importance in the Rockies, south Texasand the Gulf Coast, the application and effectiveness of existinginfrastructure needs to be questioned, Sheehy said. Rockiestransportation projects could be revamped in a similar way to those in theeastern U.S., with its bidirectional projects linking Appalachian resources tomarkets in the Midwest.

"The Rockies are suffering at this point in time froman allocation of capital," Sheehy said. "I think this is where LDCswill step up. LDCs and the end-use customers are going to have to stand up andsay what they want. Producers would love nothing more than to do a long-termagreement with an LDC or an end-use customer."

Sheehy knows about adapting pipelines. The roughly1,679-mile Rockies Express pipeline, or REX, was designed to carry Rockies gasacross the Midwest to East Coast markets, but the appearance of strong supplyin the East in the form of the Marcellus Shale hurt the pipeline. New ownersturned the pipeline around to bring Marcellus gas to markets to the west and south,and their plans continue toexpand as they see REX as part of a system that could eventuallymove Appalachian gas to the Pacific Northwest. 'sTallgrass Developmentowns 50% of REX, Tallgrass Energy Partners owns 25%, and owns 25%.

Sheehy noted that, even for producers in the Marcellusarea that have access to a vast amount of gas molecules, getting a pipelinethat will reach markets throughout the U.S. can be slow, problematic andexpensive.