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Study Measures Price Impact of Pipe Expansions

Study Measures Price Impact of Pipe Expansions

A study released Monday by Energy ERA, a Calgary-based energy consulting firm, estimated that two scenarios involving different pipeline expansions - one involving Vector and Millennium and another involving Independence and MarketLink-from the Midwest into the Northeast will have the same spot price impact. Both would cause an average $0.30/MMBtu price decline in New York Citygate prices over the next five years.

"Its very substantial, but I wasn't surprised," said Ken VanderSchee, an analyst with Energy ERA, "Our study was based on historical usage, price differentials, and pipeline capacity, and we found that the Northeast prices are very reactive to the expansions." The study predicted for the winter of 2001, New York Citygate prices without any expansion would be (U.S.) $2.95/MMBtu. Taking into account planned expansions, the study estimated the price will be $2.61.

The firm's base case scenario involves the 1 Bcf/d Vector project, which would extend from Chicago to the Dawn Hub in Ontario, and the 700 MMcf/d Millennium project, which basically would extend from Dawn to New York City. Under the base case over the next five years, the average price of gas at Dawn is expected to fall $0.22, and the average price of gas at Chicago and the Henry Hub is expected to fall $0.10. Alberta prices are expected to rise $0.21.

Because prices are expected to fall so sharply at Northeastern citygates, Energy ERA predicts the pipelines will suffer in the short term. Economics won't be favorable for the new Northeast-bound pipelines until 2004. "That's not to say the moment some of these projects open, there will be no gas flowing through them," VanderSchee said. "All we're saying is that the study indicates it will be a while before the transportation costs become more than the toll charges."

Besides the main Vector/Millennium base case, the study explored a number of other scenario's using planned and underway expansion projects. It also evaluates the price impact if no new projects are built. The 150-page study is available on a confidential multi-client basis. For more information, see the notice at www.energyera.com.

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