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Downed Canadian Nuclear Plants Spur Gas-Fired Construction

Downed Canadian Nuclear Plants Spur Gas-Fired Construction

A former "wild card" in the outlook for Canada's biggest energy market is starting to look like an ace for natural gas that will pay off for American as well as Canadian suppliers, according to new evidence before the National Energy Board. The NEB has been told a healthy growth market for gas is developing fast as a result of Ontario Hydro's shutdowns of nuclear power generators and electricity deregulation. According to the evidence, a C$1.7-billion (US$1.2-billion) chain of gas-fired power projects is rising from the ashes of the Crown Corp.'s crumbling monopoly and troubled nuclear facilities.

The projections surfaced in a summary of a confidential report done for Vector Pipeline Project by National Energy Services of Toronto and Calgary, a consulting house whose clients for power market intelligence also include Alliance Pipeline, Edmonton's EPCOR Utilities Inc. and TransAlta Energy Corp.

When Vector made construction applications for its 1 Bcf/d route from Chicago to the Dawn gas trading hub in southern Ontario last April, the project called power generation the wild card in forecasts of demand for proposed new delivery service.

Eight months later, enough of the card is showing to suggest it is a high one for any and all gas, American or Canadian, that reaches the Chicago trading hub and can move farther. In a partial disclosure of subscribers that have booked more than 80% of the proposed capacity, Vector has identified marketing affiliates of project sponsors MCN Energy Group and Enbridge Energy and added that none of the shippers to date are producers. Although the project has moved its in-service date back nearly a year to a third-quarter 2000 target that matches Alliance Pipeline's construction schedule, Vector said it may advance the timing to respond to demand.

NES recites a list of announced projects and requests for proposals by power consumers that has rapidly formed since Vector made its regulatory filings last spring. The upheaval in the power sector is so far-reaching that gas use will increase sharply even if it only fills in part of the opening for new generating stations. NES points out that Ontario Hydro idled a whopping 4,375 MW of aging nuclear capacity in 1997 and this year because of safety investigations. Adding its vote to a widespread consensus in central Canada, NES predicts the mothballed nuclear facilities will stay shut down: "The units are old and significant costs must be incurred to bring the plants back on line."

The closures already forced Ontario Hydro to switch back to old coal- and oil-fired plants for 32.7% of its total generation capacity. This "will significantly increase Ontario Hydro's sulphur-dioxide, nitrous-oxide and carbon-dioxide emissions, and increase Ontario Hydro's weighted average cost of generation." This, in the face of "increased environmental awareness due to Canada's Kyoto commitments (to cut 'greenhouse gas' emissions by 6%), local health concerns over air quality and the impending opening of the Ontario electricity market in the year 2000."

Although deregulation is expected to lead to expansion of a reorganized Hydro Quebec into the Ontario market, a proposed new tie-line for imports from French Canada appears likely to have capacity of only 650 MW. NES adds that even if Ontario Hydro succeeds in taking one of its idled atomic units out of mothballs, there will still be demand for more than 2,150 MW of new gas-fired power generation in 2000-2005.

There will be demand for 386 MMcf/d of gas as power-station fuel if the NES prediction is right. The consultants point out that independent power producers are wasting no time in making the forecast come true by forming a line to build gas-fired plants since spring. The lineup so far includes a 525 MW project in Sarnia by TransAlta and a 112 MW station sponsored by Toronto Hydro and Boralex. NES reports numerous requests for proposals are circulating, such as a 100 MW plant sought in Richmond Hill, a 12 MW station at Carlton University, a 75 MW project at Pearson Airport and a district heat and energy opportunity at Downsview.

Vector Sees Need for 450 MMcf/d

Vector says its own market intelligence, including projects still in the feasibility stage, suggests 2,400 MW of gas-fired capacity requiring in excess of 450 MMcf/d will be built in the 2000-03 period. The prediction is being taken seriously. Vector part-owner Enbridge is well plugged into the Ontario market as owner of Canada's biggest local distribution company, Toronto-based Consumers' Gas. As investments, the power production plans rapidly climb beyond the $1 billion mark because even relatively cheap gas-fired cogeneration facilities cost C$780-$819 (US$550-$580) per kilowatt hour of installed capacity in Canada, NES calculates.

While remaining more cautious than Vector, NES also expects a flurry of gas-fired generation development as soon as the Ontario market comes open in 2000, under a bill passed recently by the provincial legislature. NES believes "600 MW of gas-fired generation is likely to be installed in the 2000-01 period and another 800 MW of gas-fired generation is likely to be developed in 2002. After 2002, about 750 MW of capacity will come on stream as Ontario's premier cogeneration (power and heat) sites are utilized."

Vector, one in a string of pipeline projects crafted to move gas beyond the expanding international trading hub at Chicago, predicts it will "greatly assist in the development of these projects" and "spur additional investment in natural-gas transmission and potentially distribution infrastructure to serve these projected requirements."

Vector says rising demand means its pipeline will work even without the companion Millennium Pipeline, proposed by TransCanada PipeLines, Columbia Gas Transmission, MCN Energy and Westcoast Energy to relay gas beyond Ontario to the U.S. Atlantic seaboard. TransCanada filed with the NEB for a key link in Millennium: the C$161.8 million (US$115 million), 700 MMcf/d, 61-mile Lake Erie Crossing from Vector's Dawn terminus to the U.S. border. TransCanada said seven shippers subscribed for almost all the capacity.

Vector, quizzed by the Canadian Association of Petroleum Producers in paper exchanges prior to NEB hearings, says it is not relying on Millennium to go ahead on its US$683.6-million, 442-mile route to Westchester County in New York State. There could even be shortages of pipeline capacity in central Canada if Millennium is built, Vector said.

Vector predicts that if Millennium does not proceed, deliveries to the northeastern U.S. will still increase via the Portland, Iroquois, Tennessee, National Fuel and Empire State pipeline systems.

Gordon Jaremko, Calgary

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