Canada’s National Energy Board gave natural-gas exporters alicense to grow by approving the Alliance Pipeline Project, but theboard included a warning of the risks of excess capacity, pricecuts and strained supplies.
With a prediction the entire Canadian gas community will gaineventually, the NEB bluntly broke up the old-boy network thatdominated transportation since the 1950s north of the internationalborder. The landmark ruling said “the board agrees with thoseparties who argued (in 77 days of hotly-contested hearings) thatAlliance will provide benefits by offering producers an alternativetransportation service and by increasing competition amongpipelines.”
Officially, Alliance president Dennis Cornelson was cautious,describing the ruling announced Nov. 26 as “another key milestone”but not the last it has to pass. The final hurdle will beendorsement by the federal cabinet in Ottawa. Cornelson added thatthe project has to review the 123-page ruling-which includes 54technical, engineering and safety conditions on top of 41environmental recommendations handed down earlier-before making afinal decision to proceed. Unofficially, delighted Alliancesponsors and shippers predicted construction will begin on scheduleearly in the new year.
The NEB ruling set aside time-honored Canadian doctrine thatpipelines are public utilities that should be restricted to ahandful of franchises or natural monopolies, with the grid’s totalcapacity managed by government authority to protect their tolls andrevenues. The board said it accepts that “the potential for someduplication of facilities is inherent in the nature ofcompetition.”
The NEB noted Alliance and the Alberta pipeline grid,TransCanada PipeLines Ltd.’s Nova Gas Transmission, have 35 receiptpoints in common. Talks are under way on interconnections. But itwill not be a loss if the overlap leads to rivalry with thetransporters discounting tolls or making other special offers tocourt shippers, the NEB suggested.
The board said, “If commercial negotiations do not completelyeliminate potential duplication, it will likely be due to theparties’ judgment that they are willing to compete in certain areas. . . duplication which results in beneficial competition may beconsidered to be in the public interest.”
The decision made it plain that the new era has some risks. TheNEB observed that completion of Alliance’s gas producer-inspired, C$3.7 billion (US$2.6 billion), 1,875-mile, 1.3 Bcf/d route toChicago by late 2000 is bound to create excess transportationcapacity and escalate competition to sell gas, especially in theearly years of the new pipeline. Due to this year’s expansions ofthe TransCanada and Foothills-Northern Border systems, “the U.S.Midwest market will be well served by Canadian gas supplies” andexports may increase “only if Canadian producers are willing tocompete aggressively on the basis of price.”
The decision marks a landmark departure from traditionalCanadian requirements for proof that all the gas to fill a newpipeline is on hand. The NEB accepted $8.2 billion in 15-yearcommitments to Alliance shipping contracts as proof that producersare confident they will have the supplies.
The decision also brought to an abrupt end attempts to halt orchange Alliance by the Canadian petrochemical industry, with NovaChemicals leading the attack. Setting aside a mass of consultingstudies as invalid, the NEB found there is no reason to believethat Alliance’s plan to carry a gas stream rich in liquidbyproducts will dry up supplies of ethane raw materials forCanadian plants. “By providing enhanced market access, the Allianceproject would encourage additional gas production . . . therebyyielding increased supplies of ethane.”
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