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Independence, SupplyLink Lure Marketing Heavyweights

Independence, SupplyLink Lure Marketing Heavyweights

Natural gas marketers, which hadn't given the proposed greenfield Independence Pipeline and SupplyLink expansion a second look in the past, have signed up for firm transportation capacity on the controversial Midwest-to-East Coast pipeline projects, with one noting the projects were more appealing this time around. Given this support from marketers, sponsors say they now have enough binding agreements to meet FERC demands and move forward with their projects.

The associated Independence and SupplyLink projects "looked a little more attractive to us than they did previously," said Mark Evans, managing director of the Northeast region for Duke Energy Trading and Marketing LLC, which signed up for firm capacity on both. "It was just interesting.....the way they structured their project," he noted, but he declined to give any further details. Because of this, "it represents an interesting opportunity for us now.....It's one that we want to have a chance to participate in."

Independence and SupplyLink also drew the attention of Dynegy Marketing and Trade, which subscribed to more than 600 MMcf/d of combined capacity on both. This makes the Houston-based marketer the largest shipper on each project. Enron, too, couldn't help but take notice of the seemingly born-again projects.

Last Monday, the project sponsors filed with FERC what they said were binding precedent agreements with Duke Energy, Dynegy, Enron and other non-affiliated shippers that more than justify market support for Independence and SupplyLink.

ANR Pipeline submitted agreements with four companies representing 78% of the capacity of its SupplyLink expansion, while sponsors of Independence filed agreements with two companies accounting for 38% of the proposed greenfield pipeline's capacity. The agreements for both projects were for primary terms of 10 years.

The sponsors appear to have met the demands of the Commission, which in late April ordered Independence and SupplyLink to submit binding, non-affiliated agreements for at least 35% of their project capacity within a 60-day period, which expired last Monday, or face cancellation of their pipeline projects. FERC took this action after the sponsors of Independence formed an affiliate to subscribe to a large chunk of capacity on the proposed pipeline in order to justify its need.

Independence, whose sponsors are ANR, Transcontinental Gas Pipe Line and National Fuel Gas Co., said it has subscribed 350 MMcf/d of the proposed pipeline's total initial capacity of 916 MMcf/d. Committing to the firm capacity were Duke Energy (50 MMcf/d) and Dynegy Marketing (300 MMcf/d).

"We had expressions of interest in excess of that 350 MMcf/d. [But] we just decided to accept those two bids. They [Independence] made it clear to everybody that participated that the bids would be evaluated on a net present value basis. They looked at all the numbers...and did the calculations and decided for whatever reason to accept only these two bids. That's all we really needed to meet the test that FERC had put out there," said ANR spokesman Joe Martucci.

ANR said it had signed precedent agreements for 583 MMcf/d of the total 750 MMcf/d of new capacity that would be provided by SupplyLink, an upstream expansion of the pipeline's existing system. The agreements were with Dynegy Marketing (304 MMcf/d), Duke Energy (50 MMcf/d), Enron (80 MMcf/d) and Cogentrix (148.5 MMcf/d).

There was never any doubt among the projects' sponsors that they would meet FERC's requirements, said Martucci. "We've always had faith in the projects, and it looks like the market has faith in them too." The capacity agreements "should be sufficient to have FERC issue certificates" for the pipeline projects, which would transport Canadian gas from the Midwest to East Coast markets. But the sponsors acknowledge that it could be another year before the two projects receive all the necessary regulatory and governmental authorizations, as well as the approvals of their boards of directors, to begin construction.

Martucci declined to "talk about [specific] terms, conditions or rates" that were offered to potential shippers of SupplyLink and Independence, saying this was covered by confidentiality agreements. He did note, however, that all were negotiated deals, with the rates "tied to the basis differential between Chicago and Leidy [PA]."

If the Commission should accept the project agreements as bona fide, the sponsors are hoping FERC will issue certificates in time for SupplyLink and Independence to meet their targeted in-service date of Nov. 1, 2002 - about two years after the 1.1 Bcf/d Alliance Pipeline is due to begin operation. Sponsors said they would notify shippers by July 1, 2001 if the in-service date cannot be met.

SupplyLink, a 73-mile looping of ANR's existing system, and the 400-mile, 36-inch Independence line expect to be able to initially ship to East Coast markets about 1 Bcf/d of the natural gas that will flow into the Midwest from Alliance and Northern Border Pipeline's already-completed extension/expansion. The gas would be transported from Joliet, IL, to Defiance, OH, over the SupplyLink expansion, where it would then be picked up by Independence and shipped to the Leidy hub in Pennsylvania, which connects to a number of existing pipelines that serve the Mid-Atlantic and Northeast gas markets.

The two projects have been pending at FERC since March 1997, during which time they have faced almost insurmountable opposition from landowners and pipeline competitors. The critics claimed there was insufficient market support for the projects, especially Independence. Pipe competitors also proposed a number of system alternatives that they said would void the need for the projects, but FERC staff in its final environmental review rejected the proposals.

Susan Parker

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