A study released Monday by Energy ERA, a Calgary-based energyconsulting firm, estimated that two scenarios involving differentpipeline expansions – one involving Vector and Millennium andanother involving Independence and MarketLink-from the Midwest intothe Northeast will have the same spot price impact. Both wouldcause an average $0.30/MMBtu price decline in New York Citygateprices over the next five years.

“Its very substantial, but I wasn’t surprised,” said KenVanderSchee, an analyst with Energy ERA, “Our study was based onhistorical usage, price differentials, and pipeline capacity, andwe found that the Northeast prices are very reactive to theexpansions.” The study predicted for the winter of 2001, New YorkCitygate prices without any expansion would be (U.S.) $2.95/MMBtu.Taking into account planned expansions, the study estimated theprice will be $2.61.

The firm’s base case scenario involves the 1 Bcf/d Vectorproject, which would extend from Chicago to the Dawn Hub inOntario, and the 700 MMcf/d Millennium project, which basicallywould extend from Dawn to New York City. Under the base case overthe next five years, the average price of gas at Dawn is expectedto fall $0.22, and the average price of gas at Chicago and theHenry Hub is expected to fall $0.10. Alberta prices are expected torise $0.21.

Because prices are expected to fall so sharply at Northeasterncitygates, Energy ERA predicts the pipelines will suffer in theshort term. Economics won’t be favorable for the newNortheast-bound pipelines until 2004. “That’s not to say the momentsome of these projects open, there will be no gas flowing throughthem,” VanderSchee said. “All we’re saying is that the studyindicates it will be a while before the transportation costs becomemore than the toll charges.”

Besides the main Vector/Millennium base case, the study exploreda number of other scenario’s using planned and underway expansionprojects. It also evaluates the price impact if no new projects arebuilt. The 150-page study is available on a confidentialmulti-client basis. For more information, see the notice atwww.energyera.com.

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