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Downsized Maritimes Project, Laterals Get Final Green Light

April 19, 1999
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Downsized Maritimes Project, Laterals Get Final Green Light

FERC tied up all the loose ends of the Maritimes &amp Northeast Pipeline project in a draft order released last week, clearing the way for the pipeline to begin delivering about 350 MMcf/d of Sable Island gas to power plants, paper mills and new markets in Maine and other New England states this fall.

"With final approval in hand, we will begin construction of the mainline in the next few weeks," said Tom O'Connor, president of M&ampN Management Co., managing member of Maritimes. "We continue to move forward and remain on schedule to meet our in-service date of Nov. 1, 1999." Pipeline officials said they have agreements with landowners on 90% of the right of way along the 200-mile route from Baileyville to Westbrook, ME, and successfully drilled beneath the Androscoggin River in March.

Over several protests, including one from the town of Pittston, ME, and another from Maritimes shipper Boston Gas, FERC approved the amended certificate application for the project, allowing Maritimes to lower the project's firm capacity by 18%, defer construction of five laterals and raise its firm reservation rates 22% to $0.715/Dth.

Maritimes raised the costs of its stand-alone pipeline to about $390 million, or $90 million more than what was projected in its July 1998 certificate. Costs also increased $24 million on the Joint Facilities line, which is owned jointly with Portland Natural Gas Transmission (PNGTS) and extends 100 miles south from Westbrook, ME, to Dracut, MA. The company said there were unexpected increases in labor costs, engineering, overhead and other expenses. And the Commission agreed the rate hike was justified. The project still has substantial markets to serve, FERC said, contrary to the claims of its protesters.

The project was downsized to reflect the loss or delay of numerous markets in the state. Maritimes originally had 17 shippers, but the amended version of the mainline project has only four, excluding two new pipeline lateral customers. The town of Pittston had requested a rehearing and stay of the amended project, saying it was speculative because it lacked enduser support and became more of a "producer-shipper" project. But FERC rejected Pittston's claims.

"The fact that the majority or even all of the capacity of a proposed pipeline is subscribed by marketers and/or producers does not render a project speculative, as Pittston suggests," the order said. Marketers or producers who signed long-term agreements "presumably have made a positive assessment of the potential for selling gas to end-use customers."

The order also stated that Maritimes "appropriately downsized its facilities.. Thus we find that there is no merit to Boston Gas' contentions that Maritimes' market is in 'free fall,' that there has been a reduced level of support of the project, or that the project is oversized for the current level of subscriptions."

Maritimes has "overwhelmingly demonstrated market demand for the project as 82% of the pipeline's capacity is subscribed under long-term firm contracts," Commissioner William L. Massey said during FERC's meeting last Wednesday. "In short, this is a sound project. It will provide a competitive source of new gas supplies, and it poses very little risk to shippers other than to Mobil and the Sable Offshore producers, who have so heavily invested in Maritimes' success."

Maritimes has firm service agreements for 358,775 Dth/d of mainline capacity with four shippers: Salmon Resources (15 years/100,000 Dth/d), a subsidiary of Shell Canada; Canada Limited (10 years/30,240 Dth/d), a subsidiary of Nova Scotia Resources; Mobil Natural Gas (20 years/185,335 Dth/d); and Boston Gas (three years/43,200 Dth/d). The customers being served by the two new laterals evidently will be utilizing up to 270,000 Dth/d of capacity subscribed by the other shippers.

"One aspect of Maritimes' application that is interesting to me is its request to reduce the pipeline certificated capacity by about 20%," said Massey. "I'm not sure what the reduction in the capacity of this project means. It may be a reflection of the fact that the market has not matured to the degree that Maritimes originally anticipated... Perhaps this is an anomaly in an otherwise robust market. Perhaps it's a timing issue. In any event, I find it interesting and somewhat counterintuitive in the Northeast market. I'm pleased to support this order."

FERC granted a waiver of its rules to allow the pipeline to provide market information to its affiliate Mobil, a Sable Offshore Energy Project producer, because of Mobil's willingness to sign an unusual backstop agreement that shields the pipeline and the other Maritimes shippers from the risk of unsubscribed capacity.

The Commission also granted Maritimes' request to construct and operate two additional lateral lines to deliver about 270,000 MMBtu of gas to the proposed Casco Bay (a Duke Energy affiliate) and Gorham Energy power plants in Maine. The customers did not sign up for mainline capacity, but FERC noted Casco Bay will be fed with gas off of the mainline. The Gorham lateral will extend off the Joint Facilities line.

Rocco Canonica

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ISSN © 2577-9877 | ISSN © 1532-1266
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