BROOKLYN UNION<BU> SEEN HURT BY PIPELINE CLOSURE
Brooklyn Union Gas Co, a New York gas
utility, will see its gas costs up sharply as a result of
Transco Energy Co's <E> decision to close its pipelines to
transport spot gas sales, energy industry analysts said.
    Brooklyn Union, the fourth largest gas utility in the
United States, purchased 36 pct of its supplies on the spot, or
non-contract, market in 1986, and the proportion of spot
supplies was estimated much higher in the five months of 1987,
analysts said.
    Texas Eastern pipelines <TET>, the other competing
pipeline, to deliver spot gas from producing areas in the South
closed its gate station for summer, and Brooklyn Union has
relied entirely on Transco for spot supplies.
     In the month of May, Brooklyn Union paid about two dlrs
per mln British Thermal Unit for spot gas, while contract gas
costs four to five dlrs per mln BTU, industry sources said.
    Transco announced yesterday it would no longer provide open
access to transport spot natural gas to its customers for fear
of accumulating more take-or-pay liabilities.
    Take-or-pay contracts oblige pipelines to pay producers for
gas even if delivery is not taken by its customers.
    Brooklyn Union will continue receiving a small amount of
supplies from minor fields under a grandfather clause, a
Brooklyn Union official said.
    Foster Corwith, gas analyst with Dean Witter Reynolds, said
most of the rising cost to Booklyn Union will be passed through
to rate payers.
    While net effect on the company will not be known for
several months because of the time lag in deferred earnings,
end-users, especially residential and commercial customers,
will end up paying more for gas, he said.
    Because the closure takes place in summer months when gas
demand is at seasonal low, the impact on cash flow would be
small, Curt Launer, natural gas analyst with Donaldson Lufkin
Jenrette, said.
    If the situation persists into winter heating season, high
cost gas could cut in the company's profits, he said.
    Gas utilities along eastern seaboard relying on Transco for
spot gas, such as North Carolina Natural Gas Co <NCNG>,
Piedmont Natural Gas Co <PNY>, will face the same high cost
factor as Brooklyn Union, Steve Richards, a supply manager with
end users supply system, a Houston based natural gas brokering
firm, said.
    "But these companies are not unwitting victims of the
take-or-pay dispute between Transco and producers," he said.
    Distributors have turned a deaf ear to Transco's request
for an inventory charge, which reserves the pipeline facility
for spot gas to be delivered to these companies, he said.
    Without spot supplies, the high cost of system gas will
threaten to drive away large customers capable of shifting to
alternative fuels, he said.
    In absence of any guidelines on inventory charges from the
Federal Energy Regulatory Commission, the matter is being
negotiated between pipelines and customers, Richards said.
    Now that Transco has refused to transport cheap spot gas
for them, these distributors are likely to be more conciliatory
on the inventory charge, he said.
    "Cool heads will prevail," DLJ's Launer said, " but it may
take a while."
       
 Reuter
