Building Pipes is More Complicated Than Ever

Planning, developing and building natural gas pipelines over the last decade has become a difficult endeavor, filled with the risk of numerous regulatory hurdles and barriers to entry, according to a panel of transmission experts last week at GasMart/Power 2001 in Tampa, FL.

When Alliance Pipeline filed to build a 1.3 Bcf/d, 2,300-mile pipeline from Fort St. John in northeastern British Columbia to Chicago in late 1996, FERC called it an "at risk" pipeline, said Jay Godfrey, manager of public, government and media affairs for Alliance. Although the project was developed because of the wealth of gas in Western Canada and the strong potential in the Chicago market area, Godfrey admitted, "We did not know if we were going to make it to the next week."

"We had to overcome some significant barriers to entry to the market," the Alliance exec said. "We were a brand new company that now wants to compete with the biggest companies on the continent." Godfrey added that established competitiors were some of the toughest barriers, noting that Nova, TransCanada PipeLines Ltd. and Foothills Pipe Lines Ltd. all fought to delay or kill the Alliance project.

TransCanada PipeLines and Nicor Inc. even launched a competing project named the Viking Voyageur to undermine the Alliance project, but dropped their plans to proceed due to a lack of commitments from Midwest shippers that would have been served by the project (see NGI, Nov. 9, 1998).

"The western Canada gas producers wanted choice, and were steadfast allies" to Alliance, Godfrey said.

The fact that "nobody wants a pipeline in their backyard" has made current pipeline development even more difficult. Negotiating with some 6,000 landowners along the proposed route was no easy task either, but the company said it reached easement agreements with 99% of the population.

David Penzien, vice president of market development for Columbia Gas Transmission Corp. and chairman of the Millennium Pipeline project, agreed that getting pipelines built now is much more difficult than it has been in the past due to the regulatory approval process and a changing market structure.

"When you talk about risk going forward and the change in the structuring of the deals, one only has to look back about six years to see that 92% of our deals in 1995 were done with local distribution companies (LDC)," said Pentzien. "In a period of six years, what we have seen is the fact that while the LDCs still control a good chunk of the capacity, the day-to-day decisions they make on that capacity have now been reduced to 44% of the deals." Asset management deals, marketers and shippers are now constituting larger percentages of the deals, he noted.

Only 7% of the 442-mile Millennium Pipeline project --- which would bring 714 MMcf/d of gas to New York City from connections with the Canadian pipeline grid under Lake Erie --- traverses virgin right-of-way territory, and Pentzien said 95% of the 1,700 landowners have already granted survey permission.

The Columbia executive said natural gas consumption is expected to increase by 3.9 Bcf/d by 2010, sparked by the expected influx of new gas-fired generation. To meet that demand, Pentzien said there will need to be at least 6 Bcf/d of new pipeline capacity to supply it.

As Pentzien refers to it, the "boom/bust cycles" are severely hindering the nation's pipeline building capabilities because the long idle periods between projects lead to degradation of pipeline construction skills. Another inherent risk of building pipelines, is that passing the cost of the project via overruns to the customer is a "thing of the past." He added that most large projects currently finish over-budget.

The $700 million Millennium project was filed with FERC in late 1997 and is still pending certification primarily due to route alternative disputes in New York. With those disputes recently settled (see NGI, April 16), Pentzien said his company expects to receive final certification by mid-2001.

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