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
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
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