Moving one step closer to bringing 1.325 Bcf/d of gas fromWestern Canada to Chicago, Alliance Pipeline last week announcedthe start of construction with the clearing of 410 miles offorested rights-of-way for mainlines and laterals in northwesternAlberta and northeastern British Columbia. The entire system isexpected to be completed and in service by October, 2000. Alliancesaid it already has commitments from 37 shippers for 15-yearcontracts worth a total of $8.2 billion. Agreements have beenreached with 93% of landowners along its 2,320-mile route acrossCanada and the United States, while time to complete the NEBproceedings has been built into the construction schedule.

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

“With the decisions made in the past weeks and months, Allianceand Aux Sable have transitioned from a proposed project into theconstruction phase for the infrastructure that will underpin twosubstantial new businesses,” said Dennis Cornelson, CEO ofAlliance. “[Alliance’s gas transmission and natural gas liquidsbusinesses] have unique and strong competitive advantages in theNorth American energy business that will allow them to createsignificant value for shippers, customers, and shareholders.”

The $1.6 billion (C$2.4 billion) Canadian component of thepipeline 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 ownedby Alliance Pipeline Inc. and will cost $1.4 billion (C$2.1billion). Construction of the U.S. segment will begin May 15.

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

The pipeline boasts it will be the largest industrial projectmounted for at least a few years in North America, thanks to thesignatures of 45 banks on the biggest “non-recourse” financing dealin the history of the continent. The banks accepted the project assecurity, without rights to foreclose on its six owners if itfails, for US$2.1 billion in loans covering 70% of its $3-billionprice-tag. The cost estimate as expressed in American funds has notinflated. But devaluation of the Canadian dollar on internationalmoney markets has driven up the figure by about 20% to C$4.5billion in the currency of Alliance’s home country in the past twoyears.

Although Alliance Pipeline gained the necessary certificationfrom Canada’s National Energy Board (NEB) and FERC, Jack Crawford,Alliance’s vice president, public, government and regulatoryaffairs, admitted details still need to be worked out. “Thesethings did not come as a surprise to us, but there are someregulatory details we still need to clear up. They are mostly on anindividual level and they are mostly environmental disturbanceissues in forested areas. We’ll handle them on a case-by-case basisand we don’t expect these matters to effect construction.” Includedin these individual environmental cases are 38 objections toAlliance’s route brought before the NEB by Canadian landowners. Thehearings will begin April 12.

Alliance acknowledges there may be a lag in entirely filling allCanadian export capacity after its completion while producersscramble to catch up with accelerated drilling and fielddevelopment. But Cornelson said a 5% or even 10% excess of pipelinespace would by itself be a highly positive development by Canadianstandards.

The old, high price differentials were generated by gas-on-gascompetition within Canada to get on limited pipelines. Allianceboth ensures that a truly North American value will be paid forCanadian gas, thus securing its growth prospects, Cornelson said.After a recent shuffle that saw Unocal sell its interest, Alliancedescribes its ownership group as now stable with Coastal Corp.holding 14.4%, Duke Energy Corp. 9.8%, Enbridge Inc. 21.4%, FortChicago 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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