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Northern Border Expansion to Start This Week Nearly Full

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 this point."

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 initially.

Rocco Canonica

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