Western Prices Expected to Soar in Upcoming Supply Shift
San Juan Basin prices could average close to $3.20/year by 2005,
and other western points could see similar increases because of the
major supply shift that is expected to occur once the Alliance
project comes on line next year, Larry Larsen, a vice president at
Williams Gas Pipeline-West, said in a panel discussion this week at
Ziff Energy Group's North American Gas Strategies conference in
Citing data from PIRA Energy Group, Larsen projected that
Alliance will help boost prices at such western points as
Kingsgate, Sumas and major spot locations in the Rockies from
recent levels in the $2.10s, $2.20s and $2.30s to solid base
positions in the $2.70s and $2.80s by 2005.
Alliance is North America's biggest pipeline project of the past
decade, exceeding even Kern River in 1992, he noted. And though
still in construction phase, it is already having an impact on the
future western gas supply picture.
Prior to the Alliance project and Northern Border's Chicago
extension, which went into service last December, Rockies gas
tended to supplement other supplies in California and the Pacific
Northwest but also often moved into the Midcontinent and Midwest
markets when prices there were attractive, Larsen said.
In recent years, Permian Basin supplies have been sold mostly
into intrastate Texas and to the Midcontinent/Midwest region and
secondarily to California and east-of-California markets, he said.
However, the new Chicago-bound pipes are pushing Rockies' gas
out of the Midcontinent/Midwest but also are allowing Rockies'
production to grab more market share along the West Coast, said
Larsen. In addition, he sees the Permian Basin as returning largely
to its former westward-flow pattern as Canadian supplies to the
western U.S. decline. These trends will be hastened by the fact
that Northwest Pipeline is already "maxed out" moving Rockies gas
northward and Kern River is flowing maximum volumes to California,
There is a consensus that not enough Canadian gas will be
available to fill Alliance at its in-service date unless supplies
on other pipelines, such as TransCanada, are displaced, Larsen
concluded. However, in the long run he expects enough new
discoveries in the Rockies and western Canada to ensure ample
supplies for the region.
Both Larsen and John Watts, director of energy marketing for
Avista Energy, expressed concern over the impact on Pacific
Northwest supplies after Alliance begins operations. Alliance will
take away about 300 MMcf/d of British Columbia gas that normally
moves south into Northwest Pipeline, Larsen said. "And when it gets
really cold in western Canada, a lot more [export-targeted] gas
gets kept at home," virtually insuring supply shortfalls in the
Northwest at those times, he added. Watts offered this precaution
for gas users in the Pacific Northwest to prepare for Alliance's
startup: "Make sure your supply and your transportation are firm."
Watts and Larsen found another issue on which to agree: the need
for a really cold winter to test changes made in North America's
gas deliverability infrastructure in the past few years. However,
as a subsequent speaker observed, be careful what you ask for.
"Yes, we need a 'moderate' winter to test the national grid," said
Jerry Strange, director of transportation marketing for El Paso
Natural Gas. "But we don't need extreme cold that would cause the
system to fail. We'd never be able to live that down.
Roger Tanner, Houston