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Vector Delay Confirms Market's Suspicions

Vector Delay Confirms Market's Suspicions

Future shippers on the new Chicago-to-Dawn Vector Pipeline had their fears confirmed last Tuesday when pipeline officials announced that the start-up date for the project, which was scheduled for Nov. 1 to coincide with the start-up of the long-awaited Alliance Pipeline, would be delayed a month until Dec. 1.

Vector officials blamed the delay on the excessive rainfall that has hampered construction of the 270-mile, 42-inch pipeline, which --- when completed --- would provide initial takeaway for about 700 MMcf/d of the 1.3 Bcf/d of western Canadian gas that will be shipped to the Chicago market by Alliance. Alliance is due to begin operations on Oct. 31.

After the announcement last Tuesday, Alliance officials noted the line will have hook-ups with existing pipelines and LDCs serving the Chicago hub that could pick up some of the slack between Oct. 31 and Dec. 1.

Jack Crawford, Alliance vice president for public, government and regulatory affairs, downplayed the impact of the Vector start-up setback on Alliance. "We don't think [there will be] much effect at all. We have been working closely with Vector. Our connection with them, if it's not ready, is very close. We also have five other connections with other pipelines and LDCs" at the Chicago hub. Many shippers "understand [that with ] a startup the magnitude of ours and Vector's, there are likely to be some bumps at beginning."

The Chicago market's reaction to the news Tuesday was somewhat unexpected. The Chicago basis for November widened from a plus 9.5-10 to plus 11-12 immediately following Vector's announcement. That was contradictory to what you would think would occur, said a Chicago trader for a large marketing company. "I was offering index-plus gas today betting on the chance that [that] will come off by the time bidweek rolls around," he said. The effect on the market wasn't as profound as some would have thought, agreed another trader. "In fact, Chicago prices actually strengthened on the news. You would think that with the excess gas on the market starting Nov. 1, the basis would have come off. The only thing I can think is that people are betting on cold weather showing up in the Chicago market on Nov. 1 as well."

The impact was short-lived. Dawn was back down to plus 31.5-32.5 Wednesday after hitting plus 36 the day before, a producer said. And a marketer reported Dawn basis being offered at plus 30.5 Friday. "The panic is over," she declared. Meanwhile, Chicago basis remained virtually unchanged around plus 11-12 through Friday, another trader said.

The Vector Pipeline will ship much of the Alliance gas from the market hub in Chicago to the hub at Dawn, ON, as well as provide access to markets and storage in the upper Midwest. The line's capacity will increase to 1 Bcf/d when the Highland Compressor Station in Michigan is completed and has the potential to be expanded to 1.5 Bcf/d, Vector officials said. But its initial start-up delivery capacity will be 700 MMcf/d. The pipeline is slated to serve key markets in Ontario, Quebec, and the U.S. Midwest and Northeast.

Vector shippers were notified of the delay along with the rest of the market last Tuesday, although many already had suspected the pipeline wouldn't be able to adhere to its scheduled start-up date. At an LDC forum in Chicago a few weeks ago, a spokesman for Vector insisted the pipeline was on schedule, but then sources said he showed pictures of parts of the pipeline underwater. "Folks who were there knew what that meant."

Presently, more than 90% of the Vector line has been installed and progress on the Springville compressor station is on schedule, according to the company. The Dec. 1 start-up date allows adequate time for any further weather impacts and for the extensive commissioning and testing programs necessary, it said, adding Vector is scheduled to begin filling its system in late October.

Sponsors of Vector include Calgary-based Enbridge Inc. with a 45% interest; Westcoast Energy Inc. of Vancouver, BC, with a 30% interest; and Detroit-based MCN Energy Group Inc. with a 25% interest.

Susan Parker, Roger Tanner

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