Basis Blowout, Demand Surge Make Strong Case for New Capacity
It's clearer now than ever before that significant additional
capacity is needed to the Northeast, said Millennium Pipeline
Chairman David Pentzien.
In the last month, the one- and two-year forward curves on
Northeast basis (the difference in price between the Henry Hub and
spot points in the Northeast) have blown out from 50 cents to at
least a dollar, sometimes even more depending on who you're getting
quotes from, he said in an interview with NGI.
"If you look at what's happened to the Northeast basis during
the last month-and-a-half, it just indicates to me that people are
responding to the demand and that portion of the Northeast is
looking for additional transportation," Pentzien said.
"To experience this type of basis change in the summer is
phenomenal. It's usually something that's driven by the onset of
cold weather as opposed to the anticipation of shortages in the
winter. Right now it's a pretty significant shift.
"And there is higher volatility on top of that, he added. "If
you look at Dawn basis --- [Dawn, ON] is essentially where
Millennium would start --- it's trading at about 20 cents. You look
at New York City basis of about $1, and you have 80 cents in
between. Millennium is a 50-cent project. It tells me that, coupled
with our contracts, the power plants were proposing to serve, you
see a pretty strong motivation for expansion."
He also said that after a long, bumpy ride the Millennium
project appears poised to cross the last few mile markers in the
regulatory process in the next few months and should be in-service
in November 2001. The fate of the project now depends on two
things: the evaluation of the route change in Westchester County,
NY, and a final environmental impact statement, which must be
reviewed by other several federal agencies regarding the pipeline's
Hudson River crossing.
"I look at the Westchester County issue as being one that is
solved," Pentzien said. "We've been dotting all the I's and
crossing all the T's. FERC told us they needed a little bit more
information to make their evaluation to expedite their analysis and
as I said in a letter to them last week, we are more than happy to
comply and they'll have that information by the middle of June.
We're doing our best to get them everything they need."
Regarding the controversial Hudson River Crossing, Pentzien
noted that the New York Department of Environmental Conservation
already has issued a water quality certificate. "The biggest thing
is the federal agencies need to have the final environmental impact
statement to make their final determinations," he said.
Related to that is the Commission's request that Millennium
examine Iroquois' recently filed Eastchester extension project as a
possible replacement to Millennium. Pentzien said the two projects
would serve two entirely different markets with different customers
(see NGI, May 29).
"If people would refer back to the draft environmental impact
statement on Millennium, you'll notice there's a section in there
that compares our system to 10 or 15 other types of alternatives,
so the fact the FERC asked us to do this with [Iroquois']
Eastchester project, I think, is more procedural in nature."
Iroquois filed an application for the project last month. The
$170 million, 30-mile extension would help meet gas demand in New
York City. It would run from Iroquois' mainline in Northport, Long
Island 27 miles beneath Long Island Sound to a connection with
ConEd's gas lines in the Bronx. It also would involve building
several new compressor stations and adding compression at existing
stations. If approved, the Eastchester Extension project will start
service in 2002. It initially would deliver about 220 MMcf/d of gas
compared to Millennium's proposed 714 MMcf/d. It also would be
significantly cheaper to build than the $650 million, 442-mile
Millennium project, which would extend from Canada under Lake Erie
to the New York metropolitan area.
"My official response is I think Eastchester's filing is just
another indication of the market in the immediate Northeast area.
We are serving two entirely different markets in my opinion,"
"We have signed contracts. There's a huge amount of power plant
infrastructure that either exists in the area or will be built in
the area, and the basis is blowing out," said Pentzien. "There are
a lot of good things happening. The optimism level is pretty high
in that the things that we set out to do three years ago, which was
to add capacity to this marketplace, are at the point where
everything is finally coming together."