Major Pipe Expansions Too Costly in Short Term
Current and projected economics will not support any of the
major pipeline expansions to the Northeast from the Midwest at
least until 2004, a new study by Energy ERA, a Calgary, AB-based
energy consulting firm, concludes. The Portland Natural Gas
Transmission and Maritimes & Northeast pipelines as well as the
pipeline expansions currently planned in the Gulf of Mexico will be
sufficient to meet growing gas demand in the Northeast over the
next few years.
Energy ERA said despite the flood of new supply expected to
arrive in the Midwest via Alliance Pipeline, the Northeast will not
be ready to absorb the surplus supply in the next five years.
Other secondary conclusions of the study, which is titled
"Northeast Natural Gas: Pipeline Infrastructure & Market
Dynamics," include the likelihood there will be a major capacity
turnback problem for Midwest-bound U.S. pipelines and that there
will be no need for additional seasonal storage in the Northeast
and Midwest over the forecast period of the next 16 years if
several of the proposed Midwest-to-Northeast pipelines are built.
The study also took a close look at the gas price impact of each
planned pipeline and all of the 2.8 Bcf/d of capacity proposed in
aggregate. It estimated that a scenario involving nine proposed
pipeline expansion projects that eliminated major overlapping
projects - one involving only Vector and Millennium rather that
Independence and MarketLink for example - would cause an average
$0.30/MMBtu price decline at New York City, a 22-cent drop at the
Dawn Hub in Ontario, a 10-cent drop at the Henry Hub and Chicago,
and a 21-cent increase at the AECO C hub in western Canada.
The scenario includes the additions of Alliance, Vector,
Millennium, PNGTS 2nd Expansion, Iroquois Expansion, TransCanada
1999 Expansion, Trunkline abandonment, Columbia Gulf Expansion and
Northern Border 2000. The price impact would be only slightly
different if Independence replaced Vector-Millennium. The price
impacts of other projects, including TriState, Great Lakes 300, and
a second Iroquois project, also are examined. The conclusion is
that the gas market in the entire Northeast quadrant of the
continent is in for some major changes over the next few years.
"It's 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 the first scenario of planned expansions, the
study estimated the price will be $2.61.
Economics are not favorable now and clearly won't be favorable
for some time. "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."
The 150-page study is available on a confidential multi-client
basis. For more information, see the notice at www.energyera.com.