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Basis Blowout, Demand Surge Make Strong Case for New Capacity

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," Pentzien said.

"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."

Rocco Canonica

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