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Tioga Lateral OK'd, But Alliance Sees More Growth Ahead

Moving natural gas from Western Canada and the Bakken Shale through new and existing pipelines will keep Calgary-based Alliance Pipeline LP as busy as it has ever been in its 12-year history. FERC last Thursday approved the pipeline's proposal to build a lateral out of the Bakken Shale to Alliance's mainline, allowing producers to meet the growing gas demand in Chicago.

Alliance, which is owned equally by Enbridge Income Fund and Veresen Inc., plans to "begin construction in October and begin [commercial] operations next summer," said CFO Keith Palmer at the recent LDC Gas Forum Midcontinent conference in Chicago.

The 79-mile, 12-inch diameter lateral, which would extend from affiliate Aux Sable Liquid Products LP processing plant in Illinois to Alliance's mainline, would have the capacity to transport 106,500 Mcf/d (see NGI, Jan. 30; Oct. 3, 2011). Alliance said it has entered into a precedent agreement with Hess Corp. to transport 61,500 Mcf/d for a term of 10 years [CP12-50].

"The Tioga Lateral Project will allow Alliance to transport liquids-rich gas produced from the Bakken Shale formation to the Chicago market area. Without the proposed facilities, the gas could be flared or vented due to a lack of infrastructure in the Bakken region...We find that, consistent with the certificate policy statement and Section 7 of the Natural Gas Act, the public convenience and necessity requires approval of Alliance's proposal," the Federal Energy Regulatory Commission (FERC) order said.

An offshoot of a Canadian gas producer-initiative that kicked off additional deliveries from Alberta to the United States in 2000, Alliance Pipeline is now riding a resurgence of gas supplies in both its native Alberta, but also in the United States as represented by the Bakken Shale in North Dakota. With its history of transporting rich gas, the C$141 million Alliance lateral is viewed as a key to marketing the Bakken supply.

The goal is to have new long-term pacts in place next year, said Palmer. Within a 25-mile radius of the pipeline in Alberta there are more gas and natural gas liquids (NGL) being produced today than when the line began service 12 years ago. Reserves have grown by about 14% since 2000.

"By our own profile, we see that the [Alberta] reserves should grow by another 35% by 2020. Obviously, the Bakken is growing, and the key thing about it is that Alliance is able to handle expansions of production in Canada and the Bakken without any new capital expansions of its system, except for the proposed Tioga line.

"The efficiencies of our pipelines, both in Canada and the Bakken, have been very valuable," he said. A key is the ability of the line to handle both gas and NGLs, with the Aux Sable processing plant in Illinois, about 50 miles southwest of Chicago and the large Midwestern markets. "It really is a commercial advantage to be able to handle the rich [1,300-1,400 Btu] gas supplies."

Palmer talked bullishly about the Canadian joint venture to an audience with many potential shipper representatives. "There was a completely different set of economic and operating conditions in place when the original contracts were signed [and they all now are set to expire in 2015]. We have a different group of shippers who like the Alliance Pipeline but want to see a different type of contract.

"We have been listening, and as I have said, we will be shortly offering contracts that reflect changing market conditions with a key element being our predictable toll structure. This has been a key element for Alliance since day one. During our...history our toll structure has averaged 2% annual variation. We feel with our cost structure, we'll be able to preserve that level of stability."

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