For the second time in five months, the National Energy Boardhas served notice that competition has arrived to stay in theCanadian natural gas pipeline community.

In approving the Canadian leg of the Vector Pipeline Project,the NEB set aside traditional objections by TransCanada PipeLines,saying “the public interest is served by allowing competitiveforces to work, except where there are costs that outweigh thosebenefits. The economic benefits of Vector relate to increasedcompetition and the additional transportation option it offers toshippers.”

The NEB, acting on a request by the Canadian Association ofPetroleum Producers, directed Canada’s share of Vector to waituntil Oct. 1, 2000, to go into service. In effect, the board ruledthere would not be much use for the new link between the boundarywith the United States and the Dawn trading hub in southwesternOntario before completion of Alliance Pipeline Project from westernCanada to Chicago and the U.S. leg as a companion to relay gasfarther east from there. The Canadian portion is just a small partof the 343-mile Vector Pipeline. About 15 miles of the route fromDawn, ON, to Chicago is in Canada.

The NEB said it was not disturbed by prospects that the 1 Bcf/dVector would add to the overcapacity while middle-western andeastern U.S. markets, as well as central Canada, adjust to thearrival of all the new gas in Chicago. By October of 2000, therewill be capacity for an additional 2 Bcf/d of Canadian gas to reachChicago via the recently-completed expansion and extension of theFoothills-Northern Border system and then the Alliance route nowunder construction.

The board shares the optimism among Canadian exporters. Itpredicted “in this instance, underutilization of the proposedfacilities or decontracting on existing network pipelines wouldlikely occur only in the short term.”

The NEB, noting the optimism was not challenged at its hearings,accepted enthusiastic market forecasts by Vector, a partnership ofAlliance part-owner Enbridge Inc. of Calgary and Detroit -based MCNEnergy Group. The projections call for annual increases in gasdemand in Ontario and Quebec of 2.1% until 2005 and 1.6% in2005-10, on top of an annual 2.1% growth rate in the U.S. Northeast(an average of forecasts by the Gas Research Institute, the U.S.Energy Information Administration and Cambridge Energy ResarchAssociates). Also part of the outlook, although still too uncertainto be translated into numbers, is increased demand for gas as powerstation fuel due to closures of nuclear plants in Ontario. The NEBnoted the Canaian leg of Vector has already landed 10- to 15-yearcontracts with shippers for 828 MMcf/d, or 83% of its capacity. Theshippers include Enbridge, MCN’s CoEnergy Trading and two whoseidentities are being kept confidential.

The NEB said it “accepts TransCanada’s argument that, whencapacity is added to a market, all pipelines and shippers in thatmarket are potentially at risk.” But,”risk is an essential elementof competition.” It is also only natural that letting newcomersinto the gas pipeline business raises the stakes. “It should benoted,” the NEB said, “that it is generally incumbents that have acompetitive advantage in offering expanded capacity, because theyare able to expand in smaller increments than a greenfield pipelineand can normally ‘roll-in’ tolls.”

The NEB’s competition doctrine, elaborated on a string ofrulings since mid-1997, including the landmark Alliance approvallast November, is distilled into a concise policy statement in theVector ruling. The board said: “The market should be permitted tooperate; undue influence on the market should not be exercised byany individual or small group of individuals; and shippers must bepermitted to exercise choice to have access to alternative means ofgetting their products to market.” Vector predicted it will receiveits final certificate from the Federal Energy Regulatory Commissionin the second quarter of this year.

Gordon Jaremko, Calgary

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