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Date: Wed, 3 Oct 2001 09:18:18 -0700 (PDT)
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Subject: Williams and Duke Commence Construction of Gulfstream Project
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October 3, 2001=20
Williams and Duke Commence Construction
of Gulfstream Project=20
By Will McNamara
Director, Electric Industry Analysis=20
[News item from Business Wire] Gulfstream National Gas System announced tod=
ay that it has received Federal Energy Regulatory Commission (FERC) approva=
l to commence mainline pipeline construction in Florida. With this approval=
, Gulfstream now has all the major segments of its 753-mile pipeline projec=
t under construction and on schedule to deliver natural gas in June 2002.=
=20
Analysis: The Gulfstream Natural Gas System, which is by far the largest pi=
peline project in the Southeast, has been designed specifically to deliver =
natural gas into the Florida wholesale market. When finished, the project r=
eportedly will be the largest natural-gas pipeline in the Gulf of Mexico, w=
ith capacity to transport approximately 1.1 billion cubic feet of natural g=
as per day, and the first new transportation system to serve Florida in mor=
e than 40 years. Williams (NYSE: WMB) and Duke Energy (NYSE: DUK) jointly o=
wn the pipeline, having purchased it from Coastal Corp. last year, a sale t=
hat was made possible due to regulatory requirements surrounding Coastal's =
merger with El Paso Corp. Along with projects still being led by El Paso Co=
rp. (NYSE: EPG), the Gulfstream project highlights the continuing emphasis =
on pipeline construction, which by some accounts is experiencing the larges=
t wave of expansion since the early 1960s.=20
Williams and Duke have provided a current status report regarding construct=
ion of the pipeline, including notice that more than 200 of the 431 miles o=
f offshore pipeline have been laid in the Gulf of Mexico. Gulfstream also h=
as already laid pipe in parts of Florida and Alabama, some of the more sens=
itive regions along the pipeline's path.=20
Like other pipeline developments, the Gulfstream project, the construction =
for which began on June 1, 2001, is being driven by several factors, includ=
ing demand (which for the most part remains strong), the prominence of natu=
ral gas as the fuel source for new power plants and a presidential administ=
ration that is supportive of production. What is perhaps most interesting a=
bout the boom in pipeline construction is that many of the same companies t=
hat own or control natural-gas supplies are also quickly acquiring or partn=
ering with other firms that specialize in pipeline construction.=20
For background, subsidiaries of Duke Energy and Williams announced their in=
tent to jointly purchase Coastal Corp.'s 100-percent interest in the Gulfst=
ream Natural Gas System project in November 2000. The project was originall=
y sponsored by a subsidiary of Coastal Corp., a $16 billion Houston-based e=
nergy holding company with operations in natural-gas production, distributi=
on and marketing. However, due to regulatory mandates related to Coastal Co=
rp.'s merger with El Paso Energy Corp., Coastal Corp. was forced by the Fed=
eral Trade Commission to divest the project. As a result, Duke Energy and W=
illiams found a good window of opportunity to purchase the pipeline project=
and its valuable inroad to the Florida market.=20
Approximately 400 miles of the route, which originates in Mobile, Ala., cro=
sses the Gulf of Mexico and will be located in federal offshore waters. Gul=
fstream offers 1.2 billion cubic feet of natural-gas capacity per day, and =
is designed to primarily serve Florida utilities and power-generation facil=
ities that plan on using high-efficiency natural-gas turbines. Already, the=
project has precedent agreements with 10 large Florida utilities and power=
generation facilities.=20
Duke and Williams have agreed to jointly manage the operation and developme=
nt of the Gulfstream project. It's not difficult to assess why Duke and Wil=
liams would be willing to co-own the project. The two companies, which have=
historically had a collaborative relationship, already own significant amo=
unts of interstate natural-gas pipeline capacity. Between its two subsidiar=
ies involved in natural-gas production-Duke Energy Field Services and Duke =
Energy Gas Transmission-Duke Energy owns and operates about 57,000 miles of=
pipeline and 12,000 interstate miles of capacity. Williams' five interstat=
e natural-gas pipelines reportedly deliver about 16 percent of the natural =
gas consumed in the United States. The company's vast 27,300-mile pipeline =
network stretches from coast to coast and from Mexico to Canada, serving mo=
re than 48 million residential, commercial and industrial natural-gas users=
. In fact, the two companies already were planning the Buccaneer Gas Pipeli=
ne project in Florida, a 674-mile pipeline that would have followed a simil=
ar route as the Gulfstream project will follow. Duke and Williams are no lo=
nger planning the Buccaneer project now that they have acquired the Gulfstr=
eam project. The addition of Gulfstream should benefit both companies and o=
ffer a prime position for them to expand their independent operations in Fl=
orida.=20
The CEO of Williams' gas pipeline group stated that the Florida market woul=
d support only one new pipeline coming into the state. By joining together,=
Williams and Duke can both capitalize on the high-growth state as it event=
ually becomes competitive. First among the priorities for the project is to=
ensure adequate pipeline capacity by June 2002, and meeting the projected =
10,000-MW electric generation growth that is expected in the state of Flori=
da by 2007.=20
Duke Energy also confirmed that the purchase of the Gulfstream project acce=
lerates its own entry into Florida. In fact, Richard Priory, Duke's CEO, co=
nceded at a conference last year that Duke's future success would result fr=
om its natural-gas operations. Specifically, Duke has been focused on merch=
ant plant and natural-gas pipeline construction for some time. As of this s=
ummer, Duke was rated third in announced merchant plants (behind Calpine an=
d Panda), and has made no bones about the fact that its strategy is centere=
d around building additional merchant plants and acquiring natural-gas pipe=
lines. Thus, the acquisition of Gulfstream is a perfectly appropriate move =
for the company to make.=20
Most projections place natural gas as the ongoing fuel of choice for new ge=
neration as the demand for natural gas is expected to increase from 23 tril=
lion to 30 trillion cubic feet per year by 2010. In addition, coal and nucl=
ear generation came under environmental and public scrutiny over the last t=
wo decades, at a time when natural-gas prices were comparatively low. All o=
f these factors have created a strong market for natural-gas generation.=20
Duke has had a rather difficult time penetrating the Florida market, so thi=
s pipeline could facilitate easier expansion in the state. About a year ago=
, the Florida Public Service Commission had approved the construction of a =
Duke merchant plant in New Smyrna Beach. However, the state's three IOUs ap=
pealed the decision to the Florida Supreme Court, arguing that merchant pla=
nts were not allowed under state law. The Florida Supreme Court overturned =
the decision of the state PSC, blocking Duke's entry into the state. Conseq=
uently, Duke is wisely using the acquisition of the Gulfstream project as a=
nother way to get into the Florida market (and one that is potentially more=
profitable).=20
Along with Duke and Williams, El Paso Energy Corp. also is focused on build=
ing and acquiring new pipeline capacity. The company is the parent of subsi=
diaries El Paso Natural Gas, a regulated company that operates pipelines, a=
nd El Paso Merchant Energy, an unregulated company that markets natural gas=
. El Paso Natural Gas owns and manages the Western Division pipeline, which=
includes 14,604 miles of interstate pipeline, serving markets in Californi=
a, the southwestern United States and throughout the Rocky Mountains. In fa=
ct, El Paso owns and operates the largest natural-gas pipeline in North Ame=
rica, totaling more than 58,000 miles of pipeline reaching all the major gr=
owth areas in this country.=20
An archive list of previous IssueAlerts is available at
www.scientech.com =20
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to hearing from you. Nancy Spring
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