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Alliance Passes Environmental Test; On Track for 2000

Alliance Passes Environmental Test; On Track for 2000

The proposed transmission system of Alliance Pipeline L.P. received a passing environmental grade at FERC last week, moving it one step closer to becoming a major transporter of western Canadian gas into the U.S. Midwest market. The 1.3 Bcf/d, 891-mile pipeline project, which received a preliminary go-ahead a year ago, still must obtain final approval from the Commission before beginning construction.

Provided certain mitigation measures are met, the $1.3 billion Canada-to-Chicago pipeline would have "limited adverse environmental impact," FERC concluded in its final environmental impact statement (FEIS). Key to its decision, it said, was the fact that about 92% of the proposed pipeline (815 miles) would be constructed adjacent to or within existing pipeline and power line rights-of-way, and most of the facilities would be located in sparsely-populated agricultural areas.

"This puts us firmly on track," Alliance spokesman Jay Godfrey said. FERC's action firmed up a schedule that - following a one-year delay due to a prolonged fight before Canada's National Energy Board - calls for construction to start next spring. That will be in time for completion and a start on deliveries in the fall of 2000.

The project has received a draft Canadian version of FERC's FEIS - the CSR or Comprehensive Study Report. Godfrey said Alliance got no surprises. A final CSR is expected within a few weeks. Final approval of the project's Canadian leg could come in October or November, if the NEB works at its customary pace. Construction approval may include special conditions requiring safety precautions as a result of engineering disputes over Alliance's plans to ship a high-pressure blend of liquids in vapor form for processing by an associated plan for a new processing plant near Chicago.

Godfrey said the Alliance consortium, now dominated by Canadian and U.S. pipelines that bought out the founding producers, and the shippers remain as eager as ever to see the new project built.

"The differential is still there. The impetus to get to Chicago is still there." He was referring to a wide gap between gas prices in western Canada and the Chicago market hub. While prices are hovering around C$1.50 (US$1) per Mcf in Alberta, U.S. Henry Hub prices are currently about US$1.75 and hitting around $2.35 in futures contracts for the coming heating season.

TransCanada PipeLines, meanwhile, shows signs of accepting construction of Alliance as a fact of life. In new evidence presented to the NEB in support of its own, pared-down 1999 capital program, it acknowledges "competition in natural gas transmission out of the Western Canadian Sedimentary Basin and to the markets served by TransCanada is significant and increasing as a result of new physical competition from projects such as Alliance." The old Canadian gas transportation mainstay notes the increased risk, but "it is TransCanada's view that the pipeline will continue to be utilized at a reasonable level provided that it has the flexibility to compete."

Canadian pipeline and producer representatives are committed by a spring peace accord to a prolonged, thorough and co-operative hunt for ways to put the old-guard transporters on an equal footing with the new comers by simplifying and speeding up rate-making, facilities additions and regulation.

The U.S. portion of the pipeline would extend from the U.S.-Canadian border near Sherwood, ND, to the Aux Sable extraction plant near Morris, IL, and onto the Chicago Hub near Joliet, IL, passing through North Dakota, Minnesota, Iowa and Illinois. Alliance also plans to construct about 982 miles of pipeline on the Canadian side of the border to connect with the U.S. project.

The Commission said it examined the Northern Border Pipeline Project and the now-defunct Viking Voyageur Gas Transmission Project as system alternatives but found neither was "environmentally preferable" to Alliance's proposal nor able to meet the project's objectives. Given Alliance's plans to transport 1.3 Bcf/d of firm capacity, FERC said Northern Border would need to "extensively modify" its project. Moreover, it noted Northern Border would be unable to transport the ethane-rich natural gas liquids that Alliance proposes to transport to the Aux Sable plant. Viking Voyageur has been officially cancelled. As part of the FEIS, the Commission adopted three minor variations in Alliance's route aimed at "significantly" reducing the environmental impact of the project.

FERC said it also reviewed a Northern Border/Aux Sable Plant System Alternative that would make use of Northern Border's pipeline to transport gas from the Aux Sable plant to interconnections with ANR Pipeline, Midwestern Gas, Natural Gas Pipeline Company of America and Peoples Gas. The alternative would require the construction of about 2.7 miles of 36-inch-diameter pipeline to connect Northern Border's system to the Aux Sable plant and a new 18,000 hp compressor station. Although it would be "environmentally preferable" to the proposed portion of the Alliance Pipeline that it would replace, FERC said "the implementation of this alternative is beyond [its] control" since it cannot compel Northern Border to build the facilities.

The proposed pipeline will be owned by a consortium of U.S. and Canadian companies, including Fort Chicago Energy Partners (26% interest), IPL Energy Inc. (21.4%), Westcoast Energy (18.5%), The Coastal Corp. (14.4%), Duke Energy Corp. (9.8%) Unocal Canada Ltd. (9.1%), and Williams Cos. (4.8%).

Susan Parker, Washington, D.C.; Gordon Jaremko, Calgary.

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