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Alliance Breaks Ground, Begins Construction

March 8, 1999
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Alliance Breaks Ground, Begins Construction

Moving one step closer to bringing 1.325 Bcf/d of gas from Western Canada to Chicago, Alliance Pipeline last week announced the start of construction with the clearing of 410 miles of forested rights-of-way for mainlines and laterals in northwestern Alberta and northeastern British Columbia. The entire system is expected to be completed and in service by October, 2000. Alliance said it already has commitments from 37 shippers for 15-year contracts worth a total of $8.2 billion. Agreements have been reached with 93% of landowners along its 2,320-mile route across Canada and the United States, while time to complete the NEB proceedings has been built into the construction schedule.

In preparation for construction, more than 560 miles of pipe weighing 370,000 tons have been shipped from pipe mills in Canada and the U.S. to staging and stockpiling sites along the route. Construction for the lateral pipeline facilities will begin later this year, Alliance said.

"With the decisions made in the past weeks and months, Alliance and Aux Sable have transitioned from a proposed project into the construction phase for the infrastructure that will underpin two substantial new businesses," said Dennis Cornelson, CEO of Alliance. "[Alliance's gas transmission and natural gas liquids businesses] have unique and strong competitive advantages in the North American energy business that will allow them to create significant value for shippers, customers, and shareholders."

The $1.6 billion (C$2.4 billion) Canadian component of the pipeline will begin construction June 1. Alliance Pipeline Ltd. will build, own and operate this 1,445-mile pipeline system.

The 875 miles of the U.S. portion will be constructed and owned by Alliance Pipeline Inc. and will cost $1.4 billion (C$2.1 billion). Construction of the U.S. segment will begin May 15.

Also on May 15, Aux Sable Liquids Products Inc. will start building the pipeline's natural gas liquids (NGL) extraction and fractionation facilities. The Channhon, IL, facilities will cost $365 million (C$550 million) and initially process 1.6 Bcf/d. They also will remove 40,000 barrels per day (b/d) of ethane, 8,000 b/d of butane, and 3,000 b/d of pentanes-plus. Aux Sables, owned by the same group as Alliance, is forecast to be a major addition to the pipeline project's value for all concerned - and, not least, for shippers using the route in times of low gas-price differentials between Canada and the U.S. But there are still questions about just great a volume of gas liquids will be allowed to leave Canada.

The pipeline boasts it will be the largest industrial project mounted for at least a few years in North America, thanks to the signatures of 45 banks on the biggest "non-recourse" financing deal in the history of the continent. The banks accepted the project as security, without rights to foreclose on its six owners if it fails, for US$2.1 billion in loans covering 70% of its $3-billion price-tag. The cost estimate as expressed in American funds has not inflated. But devaluation of the Canadian dollar on international money markets has driven up the figure by about 20% to C$4.5 billion in the currency of Alliance's home country in the past two years.

Although Alliance Pipeline gained the necessary certification from Canada's National Energy Board (NEB) and FERC, Jack Crawford, Alliance's vice president, public, government and regulatory affairs, admitted details still need to be worked out. "These things did not come as a surprise to us, but there are some regulatory details we still need to clear up. They are mostly on an individual level and they are mostly environmental disturbance issues in forested areas. We'll handle them on a case-by-case basis and we don't expect these matters to effect construction." Included in these individual environmental cases are 38 objections to Alliance's route brought before the NEB by Canadian landowners. The hearings will begin April 12.

Alliance acknowledges there may be a lag in entirely filling all Canadian export capacity after its completion while producers scramble to catch up with accelerated drilling and field development. But Cornelson said a 5% or even 10% excess of pipeline space would by itself be a highly positive development by Canadian standards.

The old, high price differentials were generated by gas-on-gas competition within Canada to get on limited pipelines. Alliance both ensures that a truly North American value will be paid for Canadian gas, thus securing its growth prospects, Cornelson said. After a recent shuffle that saw Unocal sell its interest, Alliance describes its ownership group as now stable with Coastal Corp. holding 14.4%, Duke Energy Corp. 9.8%, Enbridge Inc. 21.4%, Fort Chicago Energy Partners LP 26%, The Williams Companies Inc. 4.8% and Westcoast Energy Inc. 23.6%.

Gordon Jaremko, Calgary; John Norris

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ISSN © 2577-9877 | ISSN © 1532-1266
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