Study Measures Price Impact of Pipe Expansions
A study released Monday by Energy ERA, a Calgary-based energy
consulting firm, estimated that two scenarios involving different
pipeline expansions - one involving Vector and Millennium and
another involving Independence and MarketLink-from the Midwest into
the Northeast will have the same spot price impact. Both would
cause an average $0.30/MMBtu price decline in New York Citygate
prices over the next five years.
"Its very substantial, but I wasn't surprised," said Ken
VanderSchee, an analyst with Energy ERA, "Our study was based on
historical usage, price differentials, and pipeline capacity, and
we found that the Northeast prices are very reactive to the
expansions." The study predicted for the winter of 2001, New York
Citygate prices without any expansion would be (U.S.) $2.95/MMBtu.
Taking into account planned expansions, the study estimated the
price will be $2.61.
The firm's base case scenario involves the 1 Bcf/d Vector
project, which would extend from Chicago to the Dawn Hub in
Ontario, and the 700 MMcf/d Millennium project, which basically
would extend from Dawn to New York City. Under the base case over
the next five years, the average price of gas at Dawn is expected
to fall $0.22, and the average price of gas at Chicago and the
Henry Hub is expected to fall $0.10. Alberta prices are expected to
Because prices are expected to fall so sharply at Northeastern
citygates, Energy ERA predicts the pipelines will suffer in the
short term. Economics won't be favorable for the new
Northeast-bound pipelines until 2004. "That's not to say the moment
some of these projects open, there will be no gas flowing through
them," VanderSchee said. "All we're saying is that the study
indicates it will be a while before the transportation costs become
more than the toll charges."
Besides the main Vector/Millennium base case, the study explored
a number of other scenario's using planned and underway expansion
projects. It also evaluates the price impact if no new projects are
built. The 150-page study is available on a confidential
multi-client basis. For more information, see the notice at
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