The proposed transmission system of Alliance Pipeline L.P.received a passing environmental grade at FERC last week, moving itone step closer to becoming a major transporter of western Canadiangas into the U.S. Midwest market. The 1.3 Bcf/d, 891-mile pipelineproject, which received a preliminary go-ahead a year ago, stillmust obtain final approval from the Commission before beginningconstruction.

Provided certain mitigation measures are met, the $1.3 billionCanada-to-Chicago pipeline would have “limited adverseenvironmental impact,” FERC concluded in its final environmentalimpact statement (FEIS). Key to its decision, it said, was the factthat about 92% of the proposed pipeline (815 miles) would beconstructed adjacent to or within existing pipeline and power linerights-of-way, and most of the facilities would be located insparsely-populated agricultural areas.

“This puts us firmly on track,” Alliance spokesman Jay Godfreysaid. FERC’s action firmed up a schedule that – following aone-year delay due to a prolonged fight before Canada’s NationalEnergy Board – calls for construction to start next spring. Thatwill be in time for completion and a start on deliveries in thefall of 2000.

The project has received a draft Canadian version of FERC’s FEIS- the CSR or Comprehensive Study Report. Godfrey said Alliance gotno surprises. A final CSR is expected within a few weeks. Finalapproval of the project’s Canadian leg could come in October orNovember, if the NEB works at its customary pace. Constructionapproval may include special conditions requiring safetyprecautions as a result of engineering disputes over Alliance’splans to ship a high-pressure blend of liquids in vapor form forprocessing by an associated plan for a new processing plant nearChicago.

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

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

TransCanada PipeLines, meanwhile, shows signs of acceptingconstruction of Alliance as a fact of life. In new evidencepresented to the NEB in support of its own, pared-down 1999 capitalprogram, it acknowledges “competition in natural gas transmissionout of the Western Canadian Sedimentary Basin and to the marketsserved by TransCanada is significant and increasing as a result ofnew physical competition from projects such as Alliance.” The oldCanadian gas transportation mainstay notes the increased risk, but”it is TransCanada’s view that the pipeline will continue to beutilized at a reasonable level provided that it has the flexibilityto compete.”

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

The U.S. portion of the pipeline would extend from theU.S.-Canadian border near Sherwood, ND, to the Aux Sable extractionplant 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 theCanadian side of the border to connect with the U.S. project.

The Commission said it examined the Northern Border PipelineProject and the now-defunct Viking Voyageur Gas TransmissionProject as system alternatives but found neither was”environmentally preferable” to Alliance’s proposal nor able tomeet the project’s objectives. Given Alliance’s plans to transport1.3 Bcf/d of firm capacity, FERC said Northern Border would need to”extensively modify” its project. Moreover, it noted NorthernBorder would be unable to transport the ethane-rich natural gasliquids 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 routeaimed at “significantly” reducing the environmental impact of theproject.

FERC said it also reviewed a Northern Border/Aux Sable PlantSystem Alternative that would make use of Northern Border’spipeline to transport gas from the Aux Sable plant tointerconnections with ANR Pipeline, Midwestern Gas, Natural GasPipeline Company of America and Peoples Gas. The alternative wouldrequire the construction of about 2.7 miles of 36-inch-diameterpipeline to connect Northern Border’s system to the Aux Sable plantand a new 18,000 hp compressor station. Although it would be”environmentally preferable” to the proposed portion of theAlliance Pipeline that it would replace, FERC said “theimplementation of this alternative is beyond [its] control” sinceit cannot compel Northern Border to build the facilities.

The proposed pipeline will be owned by a consortium of U.S. andCanadian companies, including Fort Chicago Energy Partners (26%interest), IPL Energy Inc. (21.4%), Westcoast Energy (18.5%), TheCoastal 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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