People have always debated whether the prolific San Juan in New Mexico was truly considered a Rocky Mountain oil and gas basin. Some regional production maps include it when they describe the Rockies; some don't. The widely accepted industry categories are northern Rockies for Colorado, Wyoming and Utah, and southern Rockies or southwestern production for San Juan Basin gas. Gas from the San Juan has always been shipped west to eager California buyers, so its inclusion in the "Rockies production versus pipeline export" equation has been almost an afterthought. Now, however, thanks to actual and possible construction of liquefied natural gas (LNG) terminals on the West Coast, gas from the San Juan is about to find a new pathway to a new market. That pathway is through the northern Rockies, and its impact on Rockies index prices and Rockies pipeline export capacity could be profound. TransColorado Pipeline is quietly undergoing the regulatory equivalent of an about-face. The change of direction in its flow is thanks to recent simultaneous commitments by ConocoPhillips (think Burlington Northern) to long-term firm transportation on the Rockies Express and TransColorado pipelines. Earlier this year, in a little-known transaction, ConocoPhillips signed up for firm transportation of 250,000 million Btu (MMBtu) per day on TransColorado Pipeline from Blanco, New Mexico, to Meeker, Colorado. On the same day, ConocoPhillips committed to 400,000 MMBtu per day of firm transportation on Rockies Express Pipeline. That simultaneous commitment, sources indicate, occurred in a two-week flurry of negotiations. It will result in a reversal of directional flow for TransColorado. The pipeline that once flowed exclusively north to south is about to do a 180-degree switch. TransColorado Pipeline's first years were full of snickers, as very few pipeline shippers showed up for the party. The last few years have seen vindication, however, as it has been full to the brim, shipping Uinta Basin and Piceance Basin gas south to the San Juan to compete for southwest California markets. Full to the brim means 380,000 MMBtu a day of northern Rockies gas headed southward. In a key recent development, most Rockies gas players have been jumping up and down with excitement over the unprecedented quick commitment to Rockies Express Pipeline by major gas industry players. However, seemingly no one has realized the potential impact of a reversal of flow on TransColorado. In a nutshell, San Juan gas will be invading new territory-the northern Rockies. Instead of 350,000 MMBtu per day of northern Rockies gas flowing south to the San Juan Basin and then west to California, 250,000 MMBtu a day of San Juan Basin gas will actually flow north. This flow reversal means an approximate swing of more than 600,000 MMBtu a day in the production-versus-pipeline-export calculations for the northern Rockies. The shift of gas flow could shorten the basis blowout-buffering benefit of the new Rockies Express Pipeline by at least 18 months. It could also require the immediate planning of pipeline capacity expansions out of the Rockies. There may be no rest for the weary pipe-rolling steel companies. The potential impact on Rockies gas prices by ConocoPhillips' lone pipeline commitment will be multifold and cause a definite restructuring as to which price point in the Rockies index enjoys the highest outright price. It also underscores the difficulty in predicting Rockies gas prices or basis differentials when one company's commitment can shift the directional flow of gas on a major pipeline. The pipe dream realized Many experts agree that the near-term production-growth curve in the northern Rockies should equate to an incremental 300,000- to 500,000 MMBtu per day each successive year for at least the next five years. As predicted, higher drilling activity is turning potential gas reserves into actual production. Many Rocky Mountain independents seeing this 1.8 million MMBtu a day of new commitment to Rockies Express Pipeline had to breathe a sigh of relief. Without a commensurate increase in pipeline export capacity, small and midsize independents feared a basis blowout, thanks to record gas production. Yet smaller producers could not make the long-term financial commitment required to see the $4-billion Rockies Express Pipeline built. A project the size of Rockies Express requires a major's financial balance sheet to become a reality. After all, consider the dollar exposure when committing to long-term transportation. It costs roughly $1.08 per million Btu (plus 3% fuel) to ship gas from Colorado and Wyoming east on Rockies Express. A commitment of 400,000 MMBtu per day like ConocoPhillips' (at a gas price of $6 per million Btu) means roughly $516,000 per day in guaranteed transport fees for 10 years. That equates to approximately $1.9 billion over 10 years. Rockies Express Pipeline represents a huge step forward in addressing concerns over Rockies production versus pipeline export capacity for the next few years. In a record-setting "idea-to-commitment" of less than nine months, Rockies Express seems to be a pipeline meant to happen. Ownership partners Kinder Morgan Energy and Sempra Energy will build one of the largest pipelines ever constructed in the Lower 48. And, at press time, ConocoPhillips purchased a 25% stake in Rockies Express Pipeline and became their partner. The new line will have a pipe diameter of 42 inches across its 1,323-mile length. It will move 1.8 Bcf per day of western gas to points as far east as Ohio. With a proposed eastward extension, Rockies gas molecules may eventually be consumed in New York City. Throughput on the line will be the equivalent of an average-size 3-Bcf LNG tanker leaving western Colorado for East Coast markets every 36 hours. The motivations behind the major players that committed to Rockies Express are for the most part easy to understand. Consider EnCana Oil & Gas USA: it had the foresight to push for Entrega Pipeline in an effort to control the ultimate timing of its construction. EnCana's growing production in Mamm Creek in western Colorado and Jonah Field in southwest Wyoming motivated the company to be the lead player in a new pipeline out of the Rockies. After ensuring an in-service date that EnCana was comfortable with, it sold the Entrega Pipeline project to Kinder Morgan and Sempra-and now, Entrega is the predecessor pipeline and first leg to Rockies Express. It is currently operating from the Meeker Hub in the Piceance Basin, 136 miles northward to Wamsutter, Wyoming. Note that Sempra Energy, a one-third owner of Rockies Express, has a sister company, Sempra Energy LNG Corp, which is developing the 1 Bcf-a-day Costa Azul LNG project in Baja, Mexico. Not only did Sempra Energy commit to a one-third ownership in the Rockies pipeline project, it also signed up for 200,000 MMBtu a day of transportation capacity. Sempra is the only nonproducer or royalty owner in the anchor/shipper list of participants on Rockies Express. It clearly sees the future through its integrated view as a "relative" to the largest gas-using utility in the West: SoCal Gas. As part-owner with Shell in the Costa Azul LNG facility, Sempra must envision a scenario where Rocky Mountain gas is displaced out of California. Apparently, that displaced gas has one direction to turn: eastward. Sempra will be a ready, willing buyer of gas at the Meeker Hub to fulfill its firm-transport commitments. ConocoPhillips, the new owner of Rockies-gas-rich Burlington Resources, appears to have a similar vision. Its financial commitment to turn around TransColorado and help underwrite Rockies Express is hefty. It is apparently signaling that the future San Juan Basin gas-price index is less desirable than the price of gas received at the easternmost delivery point on Rockies Express-Clarington, Ohio (minus the transportation cost to get there). EnCana, Sempra and ConocoPhillips account for about 60% of the capacity committed to Rockies Express. They are seeking higher prices for their Rockies product by moving gas eastward. Why go east? Eleven LNG regasification terminals are proposed along North America's West Coast. Although the status of each project is dynamic, one regas terminal is under construction. As mentioned earlier, Sempra Energy and Shell are building the southernmost facility in North America, in Baja California. The Costa Azul facility is nearly 30% complete and should be in service by early 2008. While Costa Azul's 1 Bcf-a-day size is a sure thing, a few months ago Sempra held a nonbinding open season to seek additional interest in regas capacity. The market responded by displaying interest in another 2.9 Bcf of daily capacity! That's some serious tire-kicking. Shell/Sempra never anticipated a final facility size in excess of 2.5 Bcf a day, according to company information. They may well be on the way to a larger facility while enjoying their status as the front-runner in the competition to build a regas terminal on the West Coast. To understand the possible market impact of a 2.5 Bcf-a-day terminal, one only needs to consider the size of the California market: approximately 7 Bcf a day. Rockies producers must realize and appreciate that there is approximately 10 Bcf a day of proposed LNG regasification terminals on the drawing boards somewhere along the U.S. west coast. Clearly, any successful regas projects will have a significant impact on markets that were once controlled by Rockies and Canadian gas production. San Juan Basin index prices, more specifically their relationship to the Henry Hub or their basis differential, will be negatively affected by California LNG. ConocoPhillips has made a $1.9-billion bet on that very fact. El Paso Pipeline may see its core market in California roll over and customers begin to purchase LNG supply from Baja, Mexico. That will obviously be a negative for El Paso Pipeline. Kern River Pipeline, another Rockies-to-California pathway, and the associated Kern River index, should not be as dramatically affected by West Coast LNG. Kern River Pipeline's clients are predominantly base-load, electric-generation-type clients who are signed up for long-term direct connect to Rocky Mountain gas supply. The anticipated East Coast netback price strength of Rockies Express shippers could result in the creation of a new "Meeker index" price. Although it's foolish to try to guess the future, the Meeker index could become the strongest index price point in the Rockies. It's even conceivable that the El Paso-San Juan Basin price point could become the perpetual weakest index price point in the continental U.S., thanks to West Coast LNG. In a world where one company's commitment to firm transportation creates a 600,000 MMBtu-a-day change in the Rockies gas-export equation, it's difficult to try to predict the relative relationship between the Rocky Mountain indexes. But take heart, Rocky Mountain gas producers. All is not doom and LNG gloom. Consider this: Jim Hackett, chief executive of Anadarko Petroleum, who helped found Natural Gas Clearinghouse, perhaps has a better view of U.S. gas markets and LNG than any other production company CEO. In July, Anadarko announced that it will sell to a private equity firm its Point Tupper, Nova Scotia, Bear Head LNG regas terminal effort-after spending nearly $100 million in development money. Less than one month later, Anadarko announced the earth-shattering acquisition of two U.S. gas players, Kerr-McGee Corp. and Western Gas Resources, for $22 billion. Both players are heavy on assets in the Rockies. Anadarko's deal may be the most insightful view of how LNG may not impact the U.S. gas markets. Predictions are cheap in a world where billion-dollar bets are being placed on something too serious to be considered a pipe dream. John A. Harpole is chief executive officer of Denver-based Mercator Energy LLC, an energy consulting firm.