Presidio | Division and Economics

Presidio | Division and Economics

presidio

“I’m saddened that the company would deceive the residents of Presidio and the city management but its very unlikely that natural gas will ever be supplied to Presidio, at least as a consequence of this pipeline. People try to make this into a divisive socio-economic issue. It’s purely economics.”

“The pipeline will be around 12 miles north of presidio. It processes through a technique called ‘horizontal directional drilling’ while running through the Rio Grande river and crossing into Mexico. If you examine the construction drawings, the only physical facility is a metering station and what is called a custody transfer station on the U.S side of the border that measures the amount of natural gas that flows across the border.

There is a similar facility on the Mexico side that basically compares the numbers which, again, is called ‘custody transfer’. Ostensibly, someone could pay for what is called a ‘lateral tie’ or the more common term is called a ‘tap’. One could put a tap into the pipeline, north of Presidio, which is a series of valves and pressure reducing equipment to drop the pressure from around 1400 psi down to a lower pressure of around 400 to 600 psi and then you would run a lateral distribution line from that tap toward Presidio . You would then need to construct 12 miles of pipeline to get from the tap in location to the city of Presidio. The best routing that I could do is at least 15 miles in length . Costs on that type of construction can run from $400,000 a mile to a more normal average cost of around $1,000,000 per mile. Given where the tap in to the city is located and the construction necessary to get it to the city is roughly $10,000,000 in cost .

This would require what is called a ‘franchiseee’ such as ‘West Texas Gas’ that would have to establish a business relationships with the gas suppliers at the WAHA hub near Coyanosa. So they can’t buy gas from Trans Pecos Pipeline LLC, they would have to buy from the suppliers at the hub and that requires work at the state level with the Railroad Commission in establishing oneself as a franchisee just to conduct that business transaction. The money for this to happen would come from one of two sources. West Texas Gas is a private company and if they saw this as a business opportunity, they could invest money and develop that tap 12 miles north of Presidio and then buy that natural gas for the city of Presidio and then sell it to industrial consumers, commercial consumers .. etc.

Another option would be a partnership between a company like West Texas gas and a municipal entity in Presidio where Presidio could become the local gas company where West Texas Gas would pay for the infrastructure necessary to tie into the pipeline, purchase the gas at the hub and then in turn the city sells it to local consumers . Either way, another entity is required to conduct that business.

So if you do all of the math needed for this kind of infrastructure, you end up with about 25 to 30 million dollars in cost that somebody has to pay for. Either a private entity like West Texas Gas would roll the dice and say there is enough business opportunity in Presidio to make that worthwhile or the city would have to funnel it through municipal bonds or some other source of funding.

My inner mathmatician says it’s just not likely. If you look at Presidio, there are roughly 5000 people in the area. You measure the economic value of these situations in what is called a ‘take rate’. A good take rate would be 20% of the people would consume natural gas and that’s doing it on a headcount basis. The better way to do it is to look at the fact that there are 1700 business and dwelling units there so if you take 20% of that number you end up with around 500 or so that might be consuming natural gas. Another way to come at it is to look at the fact that there are 7 restaurants in Presidio that might benefit from Natural Gas so there really isn’t a large commercial and industrial contingent there and I can guarantee that home heating is not the biggest problem. All these factors play in to what the ‘take rate’ is and decrease the likelihood that natural gas ever really could appear in Presidio.

If Presidio could benefit from natural gas, they would extend the existing 6” West Texas Gas system that serves this area and run it 68 miles to Presidio for them to have the gas but the economic case is not there for it.  Its not that anybody doesn’t want Presidio to have natural gas. I’d be the first person to stand up and say if natural gas can help Presidio how can I help you get it? .. but the practical reality is something different.

I’m saddened that people would deceive the residents of Presidio and the city management but its very unlikely that natural gas will ever be supplied to Presidio, at least as a consequence of this pipeline. People try to make this into a divisive socio-economic issue. It’s purely economics.”

  • Coyne Gibson