Vector Delay Confirms Market's Suspicions

Future shippers on the new Chicago-to-Dawn Vector Pipeline had their fears confirmed 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 until Dec. 1.

Vector officials blamed the delay on the excessive rainfall that has hampered construction of the 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.

The announcement yesterday left many in the market asking the million-dollar question: "where will that [Alliance] gas go?" in the meantime. Alliance officials noted the line has connections with existing pipelines and LDCs serving the Chicago hub that could pick up the slack between Oct. 31 and Dec. 1.

ÿAlliance's Jack Crawford downplayed the impact of the Vector start-up delay 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 [existing] pipelines and LDCs" in Chicago. Many shippers "understand [that with ] a startup the magnitude of ours [Alliance] and Vector's, there are likely to be some bumps at beginning."

Immediate market reaction to the news was somewhat unexpected. The Chicago basis for November widened from a plus 9.5-10 to plus 11-12 Tuesday following Vector's announcement. That is 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 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."

Meanwhile Dawn prices, which one would have expected to strengthen following the news, did so, as November basis widened from low 30s to plus 36 yesterday following the announcement, a Michigan trader said.

The Vector Pipeline would transport 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 eventually will carry 1 Bcf/d, 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.

ÿVector shippers were notified of the delay along with the rest of the market 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 includes 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 the system in late October to complete the commissioning of facilities.

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.

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