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Canadian Pipeline Industry Warns of Higher Gas Prices if Projects Are Delayed

The results of two studies released last week by the Canadian pipeline industry emphasize in clear financial terms how important it is for governments to ensure timely regulatory review and approval of new pipeline infrastructure projects. One report finds that gas consumers in Canada could face up to $58 billion in additional natural gas costs over the next 19 years if there is just a two-year delay in construction of the Mackenzie Pipeline, the Alaska Pipeline and proposed liquefied natural gas (LNG) import terminals.

The new reports were presented by the Canadian Energy Pipeline Association (CEPA) at Ziff Energy Group's North American Gas Strategies Conference in Calgary on Monday. The Canadian pipeline industry is forecast to invest C$20 billion over the next two decades in pipeline, distribution and storage infrastructure. However, there already have been multiple delays on the Mackenzie Valley Pipeline due mainly to disagreement over aboriginal compensation. The Alaska pipeline, meanwhile, also is widely projected to take as much as a decade to negotiate, approve and build.

Such delays put additional pressure on the already tight supply-demand balance in North America resulting in generally higher energy costs to consumers, CEPA noted.

"These studies show that the impact of any delays is significant," said CEPA president David MacInnis. "We need to ensure there are timely regulatory reviews and approvals and the fiscal environment remains attractive and competitive. We need to ensure there are no unnecessary delays."

The first report, titled "The Costs to Canadian Consumers in Delays in Construction of Energy Transportation Infrastructure," says the impact of a two-year delay on these projects would be felt mostly in Alberta and Ontario, with the cost of gas to consumers in these two provinces rising by $20.2 billion and $19.1 billion, respectively.

Ontario consumers would have to bear as much as one-third the cost increase followed by gas consumers in Alberta and British Columbia, with 35% and 13% of the burden, respectively. The remaining 19% of the impact would fall on consumers in Quebec, Saskatchewan, the Maritimes and Manitoba in that order.

The report found that 40.5% of Ontario's cost impact would be borne by residential customers, who would suffer a $7.8 billion increase over the 19-year forecast period. In contrast, industrial customers would bear the brunt of the burden in Alberta (74%) and Quebec (53%).

To illustrate the benefits of adding a pipeline to the existing gas grid, CEPA also released a second report, titled "The Economic Impacts of Constructing an Energy Pipeline." Using a hypothetical $1.52 billion, 1,000 kilometer, natural gas pipeline located half in Alberta and half in British Columbia, the study shows that this kind of pipeline project increases the Canadian GDP by about $1.2 billion. Of that, $202 million would be felt outside Alberta and British Columbia. It also would create 17,384 jobs, including 2,907 outside of Alberta and British Columbia, and would generate more than $42 million in indirect tax revenues for all governments.

CEPA's members include Duke Energy Gas Transmission, TransCanada, Enbridge, TransGas, Alliance Pipeline, Terasen and other pipeline companies. CEPA members transport more than 95% of the gas and crude oil produced in Canada. For more details go to http://www.cepa.com.

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