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Kim Ward, Manager West Gas Origination October 4, 2001

El Paso Pipeline Transportation Proposal. Prepared for: City of Palo Alto Privileged and Confidential. Kim Ward, Manager West Gas Origination October 4, 2001. Table of Contents. General overview: scope of proposal Supply/load portfolio: City of Palo Alto

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Kim Ward, Manager West Gas Origination October 4, 2001

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  1. El Paso Pipeline Transportation Proposal Prepared for: City of Palo Alto Privileged and Confidential Kim Ward, Manager West Gas Origination October 4, 2001

  2. Table of Contents • General overview: scope of proposal • Supply/load portfolio: City of Palo Alto • ENA transportation capacity proposal • Benefits of ENA proposal • Next steps • Due diligence • Posting procedures

  3. General Overview • The current economics related to transportation provide an excellent opportunity for PG&E customers to acquire physical transportation on EPNG at full tolls (or better) which provides: • Transportation at market based rates • Flexibility to manage price risk by purchasing gas at supply region versus market region • Avoid long term demand charges by avoiding having to enter into open seasons for 10-15 years when shorter dated capacity is available • Create optionality to the City of Palo Alto • Based on the City of Palo Alto’s requirements, the capacity being discussed provides an excellent fit as: • Palo Alto can control its gas supply from wellhead to burner tip by integrating upstream transportation from the supply pools • the City of Palo Alto may invest in power generation requiring additional natural gas supply • This capacity is PG&E recallable (Block II) with primary receipt points of San Juan, Permian, and Anadarko, which will be re-designated to a 70% San Juan/30% Permian (est.) primary receipt point allocation (as per upcoming FERC orders)

  4. City of Palo Alto:Supply/Load Portfolio Proposed EPNG Capacity from ENA (10,000 MMBtu/d) Redwood Capacity of 6,090 MMBtu/d expiring in Dec 2002

  5. Transportation Supply Paths Kingsgate PGT NWPL Malin PG&E Redwood Opal Palo Alto NWPL PG&E Baja San Juan Basin El Paso Topock El Paso Permian Basin

  6. ENA Transportation Proposal • Volume: 6,000 – 12,000 MMBtu/Day (TBD) • Term: January 1, 2003 through May 31, 2006 • Delivery Point: PGE Topock (Block II) • Receipt Point: 70% San Juan/30% Permian (estimated as per FERC order) • Tolls: $.47 US/MMBtu (see attached) • Other: • I) Renewal Rights: Customer must provide six months notice to exercise ROFR rights. Option to terminate or renew at the lesser of max rate total or market rates • II) Re-call rights: PG&E holds rights to re-call capacity from shipper • --Please refer to EPNG for all rules related to re-call • III) Gas Supply: ENA is prepared to offer gas supply at any supply point for term • IV) Daily Balancing requirements: Balancing provisions to be ratified as part of commercial terms

  7. EPNG Tolls and Fuel Assumptions • Assumptions/Notes: • Tariff (Demand and Commodity Charges) as per El Paso posted tariff rates • Fuel= current fuel ratio • Fuel price= supply and fuel ratio • Reservation add-on of $.0574 included in demand charge. This charge drops off in 2004

  8. ENA Transportation Proposal Benefits: • Definitive start date customized for customer needs • Short dated firm obligations: • ENA capacity expires May 31, 2006 and you hold the renewal rights. The optionality of this expiration window could be significant. • Compared to open seasons that the industry just went through and the obligations recently committed to, this capacity is a premium transportation product.

  9. ENA Transportation Proposal (cont’d) • Receipt point service will be diversified – 60-70% San Juan and 30-40% Permian • Regulatory uncertainty with El Paso is going to continue to prohibit any real expansions of the pipe until FERC issues regarding fuel requirements, CD shipper rights, and receipt point allocation are resolved (estimated to be February 2002). • ENA will pay either an up-front lump sum payment or an annuity payment, depending on customer preference (based on fair market value at the time of transaction). • Customer has option at the time of transfer to appoint ENA as agent to conduct operational and accounting services: • Nominations at receipt points • Pipeline nominations • Daily balancing • Consolidated statement – pipeline, payables, receivables

  10. Historical San Juan/Permian vs Topock

  11. Historical Transportation Economics • For the period Jan 2000 through Sep 2001, this capacity would have been in the money 68% of the time and saved approximately $7.5-8.5 million (daily vs daily) on 10,000 MMBtu/d • This capacity offers the buyer access to low cost and lower volatility supply with minimal downside risk

  12. Forward Value of EPNG Transportation The earlier the start date, the larger the lump sum payment can be (based on current economics). Jan 2003 Start Date

  13. Next Steps • Definitive Agreement is raised (term, volume, economics) • Customer conducts due diligence with EPNG/PG&E • Credit approved with pipe • Customer & EPNG review pipe tariff, recall right obligation, renewal rights • Posting procedures • ENA posts capacity on bulletin board with all terms & conditions

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