San Juan Basin prices could average close to $3.20/year by 2005,and other western points could see similar increases because of themajor supply shift that is expected to occur once the Allianceproject comes on line next year, Larry Larsen, a vice president atWilliams Gas Pipeline-West, said in a panel discussion this week atZiff Energy Group’s North American Gas Strategies conference inCalgary.

Citing data from PIRA Energy Group, Larsen projected thatAlliance will help boost prices at such western points asKingsgate, Sumas and major spot locations in the Rockies fromrecent levels in the $2.10s, $2.20s and $2.30s to solid basepositions in the $2.70s and $2.80s by 2005.

Alliance is North America’s biggest pipeline project of the pastdecade, exceeding even Kern River in 1992, he noted. And thoughstill in construction phase, it is already having an impact on thefuture western gas supply picture.

Prior to the Alliance project and Northern Border’s Chicagoextension, which went into service last December, Rockies gastended to supplement other supplies in California and the PacificNorthwest but also often moved into the Midcontinent and Midwestmarkets when prices there were attractive, Larsen said.

In recent years, Permian Basin supplies have been sold mostlyinto intrastate Texas and to the Midcontinent/Midwest region andsecondarily to California and east-of-California markets, he said.

However, the new Chicago-bound pipes are pushing Rockies’ gasout of the Midcontinent/Midwest but also are allowing Rockies’production to grab more market share along the West Coast, saidLarsen. In addition, he sees the Permian Basin as returning largelyto its former westward-flow pattern as Canadian supplies to thewestern U.S. decline. These trends will be hastened by the factthat Northwest Pipeline is already “maxed out” moving Rockies gasnorthward and Kern River is flowing maximum volumes to California,Larsen said.

There is a consensus that not enough Canadian gas will beavailable to fill Alliance at its in-service date unless supplieson other pipelines, such as TransCanada, are displaced, Larsenconcluded. However, in the long run he expects enough newdiscoveries in the Rockies and western Canada to ensure amplesupplies for the region.

Both Larsen and John Watts, director of energy marketing forAvista Energy, expressed concern over the impact on PacificNorthwest supplies after Alliance begins operations. Alliance willtake away about 300 MMcf/d of British Columbia gas that normallymoves south into Northwest Pipeline, Larsen said. “And when it getsreally cold in western Canada, a lot more [export-targeted] gasgets kept at home,” virtually insuring supply shortfalls in theNorthwest at those times, he added. Watts offered this precautionfor gas users in the Pacific Northwest to prepare for Alliance’sstartup: “Make sure your supply and your transportation are firm.”

Watts and Larsen found another issue on which to agree: the needfor a really cold winter to test changes made in North America’sgas 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,” saidJerry Strange, director of transportation marketing for El PasoNatural Gas. “But we don’t need extreme cold that would cause thesystem to fail. We’d never be able to live that down.

Roger Tanner, Houston

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