Independence, SupplyLink Lure Marketing Heavyweights
Natural gas marketers, which hadn't given the proposed
greenfield Independence Pipeline and SupplyLink expansion a second
look in the past, have signed up for firm transportation capacity
on the controversial Midwest-to-East Coast pipeline projects, with
one noting the projects were more appealing this time around. Given
this support from marketers, sponsors say they now have enough
binding agreements to meet FERC demands and move forward with their
The associated Independence and SupplyLink projects "looked a
little more attractive to us than they did previously," said Mark
Evans, managing director of the Northeast region for Duke Energy
Trading and Marketing LLC, which signed up for firm capacity on
both. "It was just interesting.....the way they structured their
project," he noted, but he declined to give any further details.
Because of this, "it represents an interesting opportunity for us
now.....It's one that we want to have a chance to participate in."
Independence and SupplyLink also drew the attention of Dynegy
Marketing and Trade, which subscribed to more than 600 MMcf/d of
combined capacity on both. This makes the Houston-based marketer
the largest shipper on each project. Enron, too, couldn't help but
take notice of the seemingly born-again projects.
Last Monday, the project sponsors filed with FERC what they said
were binding precedent agreements with Duke Energy, Dynegy, Enron
and other non-affiliated shippers that more than justify market
support for Independence and SupplyLink.
ANR Pipeline submitted agreements with four companies
representing 78% of the capacity of its SupplyLink expansion, while
sponsors of Independence filed agreements with two companies
accounting for 38% of the proposed greenfield pipeline's capacity.
The agreements for both projects were for primary terms of 10
The sponsors appear to have met the demands of the Commission,
which in late April ordered Independence and SupplyLink to submit
binding, non-affiliated agreements for at least 35% of their
project capacity within a 60-day period, which expired last Monday,
or face cancellation of their pipeline projects. FERC took this
action after the sponsors of Independence formed an affiliate to
subscribe to a large chunk of capacity on the proposed pipeline in
order to justify its need.
Independence, whose sponsors are ANR, Transcontinental Gas Pipe
Line and National Fuel Gas Co., said it has subscribed 350 MMcf/d
of the proposed pipeline's total initial capacity of 916 MMcf/d.
Committing to the firm capacity were Duke Energy (50 MMcf/d) and
Dynegy Marketing (300 MMcf/d).
"We had expressions of interest in excess of that 350 MMcf/d.
[But] we just decided to accept those two bids. They [Independence]
made it clear to everybody that participated that the bids would be
evaluated on a net present value basis. They looked at all the
numbers...and did the calculations and decided for whatever reason
to accept only these two bids. That's all we really needed to meet
the test that FERC had put out there," said ANR spokesman Joe
ANR said it had signed precedent agreements for 583 MMcf/d of
the total 750 MMcf/d of new capacity that would be provided by
SupplyLink, an upstream expansion of the pipeline's existing
system. The agreements were with Dynegy Marketing (304 MMcf/d),
Duke Energy (50 MMcf/d), Enron (80 MMcf/d) and Cogentrix (148.5
There was never any doubt among the projects' sponsors that they
would meet FERC's requirements, said Martucci. "We've always had
faith in the projects, and it looks like the market has faith in
them too." The capacity agreements "should be sufficient to have
FERC issue certificates" for the pipeline projects, which would
transport Canadian gas from the Midwest to East Coast markets. But
the sponsors acknowledge that it could be another year before the
two projects receive all the necessary regulatory and governmental
authorizations, as well as the approvals of their boards of
directors, to begin construction.
Martucci declined to "talk about [specific] terms, conditions or
rates" that were offered to potential shippers of SupplyLink and
Independence, saying this was covered by confidentiality
agreements. He did note, however, that all were negotiated deals,
with the rates "tied to the basis differential between Chicago and
If the Commission should accept the project agreements as bona
fide, the sponsors are hoping FERC will issue certificates in time
for SupplyLink and Independence to meet their targeted in-service
date of Nov. 1, 2002 - about two years after the 1.1 Bcf/d Alliance
Pipeline is due to begin operation. Sponsors said they would notify
shippers by July 1, 2001 if the in-service date cannot be met.
SupplyLink, a 73-mile looping of ANR's existing system, and the
400-mile, 36-inch Independence line expect to be able to initially
ship to East Coast markets about 1 Bcf/d of the natural gas that
will flow into the Midwest from Alliance and Northern Border
Pipeline's already-completed extension/expansion. The gas would be
transported from Joliet, IL, to Defiance, OH, over the SupplyLink
expansion, where it would then be picked up by Independence and
shipped to the Leidy hub in Pennsylvania, which connects to a
number of existing pipelines that serve the Mid-Atlantic and
Northeast gas markets.
The two projects have been pending at FERC since March 1997,
during which time they have faced almost insurmountable opposition
from landowners and pipeline competitors. The critics claimed there
was insufficient market support for the projects, especially
Independence. Pipe competitors also proposed a number of system
alternatives that they said would void the need for the projects,
but FERC staff in its final environmental review rejected the