A Natural Gas Pipeline to Profits

David Fessler
by David Fessler, Energy & Infrastructure Strategist, The Oxford Club

A Natural Gas Pipeline to Profits

by David Fessler, Investment U Senior Analyst

Monday, September 26, 2011

California is a big state, and its appetite for energy is just as big. As you can see from the graph below from the EIA, California consumes 8.5 percent of all the energy used in the United States.

State Energy Use by Percentage

Increasingly, that energy is natural gas. The California Public Utilities Commission reports that it regulates utility gas service for about 10.7 million customers throughout the state.

Most of the natural gas used in California comes from out-of-state basins. As of 2008, the state received 46 percent of its gas supplies from the Southwest, 19 percent from Canada, 22 percent from the Rockies and 13 percent from in-state wells.

All of the out-of-state gas is delivered via the interstate pipeline system. Major pipelines providing gas to California are the Gas Transmission Northwest Pipeline, Kern River Pipeline, Transwestern Pipeline, El Paso Pipeline and Mojave Pipeline.

But there's a major new interstate pipeline that just came online less that eight weeks ago, and it's providing about 30 percent of northern California's natural gas...

The Ruby Pipeline's Natural Gas Flow

It's called the Ruby Pipeline, a 680-mile, 42-inch line providing natural gas from Opal, Wyoming to interconnections near Malin, Oregon.

As you can see from the graph below, gas flows on the pipeline have rapidly ramped up since it was brought online at the end of July.

Ruby Pipeline Online Natural Gas Flow

The line is currently delivering about 0.8 billion cubic feet per day (Bcfd) of natural gas to Pacific Gas & Electric's interconnect. PG&E is the major supplier of natural gas to northern California. The Ruby pipeline now makes up about 30 percent of PG&E's daily gas flow of 2.5 Bcfd.

As you can see from the graph below, the Ruby Pipeline (shown in red) has mainly displaced gas that was flowing through the Gas Transmission Northwest pipeline.

Ruby Pipeline Natural Gas Displaces Gas Transmission Northwest

The Ruby, with its four compressor stations, has a design capacity of 1.5 Bcfd. Flows will continue to ramp up as demand from California and other western states served by Ruby increases.

How Can Investors Play the Ruby?

The Ruby Pipeline is owned by El Paso Pipeline Partners, L.P. (NYSE: EPB). It also owns the El Paso Natural Gas Pipeline pictured in the graph above.

El Paso pays a nice, healthy dividend, currently yielding about 5.39 percent. Its shares are up 6.4 percent since the beginning of the year, as well. El Paso is a great safe haven in these tumultuous markets.

As the Ruby Pipeline continues to provide more and more natural gas to California, Oregon and Washington, those increased flows will translate directly to bottom-line profits for El Paso.

Good investing,

David Fessler

comments powered by Disqus