Northern Border Expansion to Start This Week Nearly Full
Warm winter weather normally means trouble for the gas industry,
but for Northern Border Pipeline, which is attempting to complete
construction of a major expansion/extension project, it has been a
blessing. After a month and a half delay because summer rains set
back construction, the pipeline company is expecting to have its
project in service some time between Thursday, Dec. 17, and Sunday,
Dec. 20, with the entire 700 MMcf/d capacity being fully utilized
"almost immediately," said Robert Hill, vice president of marketing
and business development for the pipeline company.
"We're probably the only party that [the warm weather] has
helped. It has made life tolerable," he said in an interview. "I
think we would have finished about on the same schedule had it been
cold, but certainly it has been a big boost to the construction
crews. And we've had no snow.
"We're pleased that although we missed the Nov. 1 deadline we
will get it in service by Christmas and be ready to meet any needs
that might occur if there are cold snaps in January or February."
When completed it will expand the capacity of the Northern
Border system to 2.4 Bcf/d and extend the pipeline to Manhattan,
IL, from Harper, IA, to serve local distribution companies and
other shippers in the Midwest, primarily in the Chicago area. The
Chicago Project was a massive undertaking that included the
addition of 303,500 hp of compression and 390 miles of new pipeline
while the company maintained more than 1.7 Bcf/d of gas flow to
existing customers. It also involved directional drilling more than
3,800 feet beneath the Mississippi River.
But the Northern Border delay was completely the result of bad
summer weather. Torrential rains in early June, which left some
locations in central and eastern Iowa disaster areas, temporarily
forced the shut-down of construction. Ten miles of pipeline trench
was filled with water. Northern Border made scoping changes, added
work crews and equipment and spent more than the expected $840
million on project construction, Hill said. But the pipeline will
be in service before the end of the year, which is something many
observers doubted would happen.
"We're planning to start loading and packing the new pipe with
linepack tomorrow," he said Friday, "and that will take several
days to pack it up. As you know, storage in the lower 48 and up in
Canada is actually very full right now. The result is there is
plenty of stored gas to flow the 700 MMcf/d out of Canada whenever
service is initiated.
"If a shipper on our system decides not to nominate any gas, he
continues to pay the bill, so that's another incentive to nominate
his contract quantity. He balances the amount of gas he has in
storage and the buried cost [he has] in Northern Border capacity
against the attractiveness of netbacks. Bottom line is I expect to
see very high nominations almost immediately, and it would be
certainly feasible for Canadian storage to support full flows
through Northern Border through the spring. I think that we can
expect it will stay up around 700 MMcf/d through the month of
January and as long as it remains cold."
Spring will provide a real test for Canadian deliverability,
however. Once storage levels are reduced, the burden will fall on
wellhead deliverability. "There has been lots of speculation about
whether the province [Alberta] is covering the decline rate. It is
everyone's question-and no one has an answer-with regard to
[whether] the new hook-ups of recent discoveries in the province
have been set up so there is deliverability to pull on them using
gas well connections. That will be the true test of the
deliverability question. We'll get the real answer in the
March-through-April time frame."
But Hill said he does not expect Canadian producers to have much
trouble filling the new capacity on Northern Border or TransCanada,
which is adding about 417 MMcf/d to its system this winter. "I
expect we'll continue to flow pretty close to 100%."
On Northern Border, there will be a net increase of 700 MMcf/d
coming out of Canada at Monchy, SK, near the Saskatchewan-Montana
border. With 10 MMcf/d being dropped off in the Dakotas, about 690
MMcf/d of incremental gas will arrive at Ventura, IA, where it will
be joined by an additional 260 MMcf/d of gas that will be able to
flow for the first time to Harper, IA. At Harper, about 300 MMcf/d
will be delivered to Natural Gas Pipeline. The rest, about 650
MMcf/d, will go on Northern Border's new extension to Chicago.
Observers will be watching over the next few weeks to see how
much of a downward impact on prices an additional 700 MMcf/d of
Canadian gas will have. Some of the impact may already have been
imbedded in current prices, according to one observer, who said
many Chicago gas buyers already see it as their "god-given right"
to be offered $1.75/MMBtu for the rest of their lives.
"I wouldn't say that is 100% true, but I, as an industrial
buyer, can say that with storage levels near full, weather mostly
benign (temps to be in the 50s this weekend in Chicago), it is a
nice time to be a buyer in the Chicago market," said one Chicago
energy supply manager.
Chicago prices spiked up to near $1.85 at one point last week
from $1.40 the week prior, but the supply manager said he wasn't
biting. "Prices rocketed up from there and I stepped right back out
of the market," he said, adding Northern Border's extension is
worth the wait.
"Over half a Bcf of gas added to this Chicago market is going to
have quite a negative impact on prices, especially in the near
term, with the warm weather we are experiencing," he said. "In the
long term, there could be some serious changes in the Chicago
basis. It could trend to a negative basis."
Any more supply into an already oversupplied market is
"something we don't need right now," said one marketer. "I fully
expect ANR and Northern prices as well as any pipeline that flows
gas into Chicago should see a major downward impact on prices at
By 2000, it will be even more of a buyers' market in Chicago.
The recently approved Alliance project will be delivering an
additional 1.3 Bcf/d of incremental gas. Northern Border plans to
provide an outlet for some of the excess with a 35-mile extension
to NIPSCO's system in Indiana from Chicago. Pending FERC approval,
the extension will have a capacity to transport 545 MMcf/d