For PG&E, Ruby Pipeline has Lost its Luster

The Daley Note: November 07, 2022

California utility PG&E is pulling back on its commitments to the Ruby Pipeline, marking a blow for the bankrupt pipeline.

On Oct. 31, PG&E filed two amendments to reduce volumes shipped through its Ruby Pipeline contracts. The move stems from the utility’s original contracts struck in 2011, which give PG&E the right to reduce its firm transport (FT) commitments by 20% every year on Ruby starting Nov. 1, 2022. The two contracts total 375 MMcf/d, reducing FT volumes by 75 MMcf/d. Rates on these contracts are $0.68/Mcf, resulting in an $18.6 million reduction in annual revenue.

Owned by Kinder Morgan (KMI) and Pembina Pipeline (PBA), Ruby Pipeline transports natural gas from the Rockies basins to the Pacific Northwest and California. The pipeline has seen its West Coast market share erode over time due to growth in Western Canada supply. East Daley had modeled for clients the PG&E volumes falling out of Ruby's cash flow, as well as a scenario under which PG&E retained the FT capacity, in an Oct. 18, 2021 Midstream Navigator, “Bankruptcy Battle Looms for Ruby Pipeline.” CLICK HERE to view this Navigator. Ruby Pipeline filed for Chapter 11 protection on March 31, 2022, five months after we released this Navigator.

We have yet to see PG&E recontact for these volumes. But as spreads between Opal and Malin have widened with this event, marketers have picked up 115 MMcf/d of short-term contacts on Ruby ranging from $0.20-0.39/Mcf. One small, longer-term contract was also signed with Nevada Gold at a $0.75/Mcf rate through 2027.

Although still a hit to Ruby overall, if short-term contracts continue at these elevated rates, revenue would fall in line with our premium revenue scenario shown in the Figure from our Midstream Navigator. Future asset cash flow would remain positive, though still far short of the ~$193 million earned in 2021 before other anchor contracts began rolling off. – Zack Van Everen Tickers: KMI, PBA.