NGI The Weekly Gas Market Report
A former “wild card” in the outlook for Canada’s biggest energymarket is starting to look like an ace for natural gas that willpay off for American as well as Canadian suppliers, according tonew evidence before the National Energy Board. The NEB has beentold a healthy growth market for gas is developing fast as a resultof Ontario Hydro’s shutdowns of nuclear power generators andelectricity deregulation. According to the evidence, aC$1.7-billion (US$1.2-billion) chain of gas-fired power projects isrising from the ashes of the Crown Corp.’s crumbling monopoly andtroubled nuclear facilities.
The projections surfaced in a summary of a confidential reportdone for Vector Pipeline Project by National Energy Services ofToronto and Calgary, a consulting house whose clients for powermarket intelligence also include Alliance Pipeline, Edmonton’sEPCOR Utilities Inc. and TransAlta Energy Corp.
When Vector made construction applications for its 1 Bcf/d routefrom Chicago to the Dawn gas trading hub in southern Ontario lastApril, the project called power generation the wild card inforecasts of demand for proposed new delivery service.
Eight months later, enough of the card is showing to suggest itis a high one for any and all gas, American or Canadian, thatreaches the Chicago trading hub and can move farther. In a partialdisclosure of subscribers that have booked more than 80% of theproposed capacity, Vector has identified marketing affiliates ofproject sponsors MCN Energy Group and Enbridge Energy and addedthat none of the shippers to date are producers. Although theproject has moved its in-service date back nearly a year to athird-quarter 2000 target that matches Alliance Pipeline’sconstruction schedule, Vector said it may advance the timing torespond to demand.
NES recites a list of announced projects and requests forproposals by power consumers that has rapidly formed since Vectormade its regulatory filings last spring. The upheaval in the powersector is so far-reaching that gas use will increase sharply evenif it only fills in part of the opening for new generatingstations. NES points out that Ontario Hydro idled a whopping 4,375MW of aging nuclear capacity in 1997 and this year because ofsafety investigations. Adding its vote to a widespread consensus incentral Canada, NES predicts the mothballed nuclear facilities willstay shut down: “The units are old and significant costs must beincurred to bring the plants back on line.”
The closures already forced Ontario Hydro to switch back to oldcoal- and oil-fired plants for 32.7% of its total generationcapacity. This “will significantly increase Ontario Hydro’ssulphur-dioxide, nitrous-oxide and carbon-dioxide emissions, andincrease Ontario Hydro’s weighted average cost of generation.”This, in the face of “increased environmental awareness due toCanada’s Kyoto commitments (to cut ‘greenhouse gas’ emissions by6%), local health concerns over air quality and the impendingopening of the Ontario electricity market in the year 2000.”
Although deregulation is expected to lead to expansion of areorganized Hydro Quebec into the Ontario market, a proposed newtie-line for imports from French Canada appears likely to havecapacity of only 650 MW. NES adds that even if Ontario Hydrosucceeds in taking one of its idled atomic units out of mothballs,there will still be demand for more than 2,150 MW of new gas-firedpower generation in 2000-2005.
There will be demand for 386 MMcf/d of gas as power-station fuelif the NES prediction is right. The consultants point out thatindependent power producers are wasting no time in making theforecast come true by forming a line to build gas-fired plantssince spring. The lineup so far includes a 525 MW project in Sarniaby TransAlta and a 112 MW station sponsored by Toronto Hydro andBoralex. NES reports numerous requests for proposals arecirculating, such as a 100 MW plant sought in Richmond Hill, a 12MW station at Carlton University, a 75 MW project at PearsonAirport and a district heat and energy opportunity at Downsview.
Vector Sees Need for 450 MMcf/d
Vector says its own market intelligence, including projects still in the feasibility stage, suggests 2,400 MW of gas-firedcapacity requiring in excess of 450 MMcf/d will be built in the2000-03 period. The prediction is being taken seriously. Vectorpart-owner Enbridge is well plugged into the Ontario market asowner of Canada’s biggest local distribution company, Toronto-basedConsumers’ Gas. As investments, the power production plans rapidlyclimb beyond the $1 billion mark because even relatively cheapgas-fired cogeneration facilities cost C$780-$819 (US$550-$580) perkilowatt hour of installed capacity in Canada, NES calculates.
While remaining more cautious than Vector, NES also expects aflurry of gas-fired generation development as soon as the Ontariomarket comes open in 2000, under a bill passed recently by theprovincial legislature. NES believes “600 MW of gas-firedgeneration is likely to be installed in the 2000-01 period andanother 800 MW of gas-fired generation is likely to be developed in2002. After 2002, about 750 MW of capacity will come on stream asOntario’s premier cogeneration (power and heat) sites areutilized.”
Vector, one in a string of pipeline projects crafted to move gasbeyond the expanding international trading hub at Chicago, predictsit will “greatly assist in the development of these projects” and”spur additional investment in natural-gas transmission andpotentially distribution infrastructure to serve these projectedrequirements.”
Vector says rising demand means its pipeline will work evenwithout the companion Millennium Pipeline, proposed by TransCanadaPipeLines, Columbia Gas Transmission, MCN Energy and WestcoastEnergy to relay gas beyond Ontario to the U.S. Atlantic seaboard.TransCanada filed with the NEB for a key link in Millennium: theC$161.8 million (US$115 million), 700 MMcf/d, 61-mile Lake ErieCrossing from Vector’s Dawn terminus to the U.S. border.TransCanada said seven shippers subscribed for almost all thecapacity.
Vector, quizzed by the Canadian Association of PetroleumProducers in paper exchanges prior to NEB hearings, says it is notrelying on Millennium to go ahead on its US$683.6-million, 442-mileroute to Westchester County in New York State. There could even beshortages of pipeline capacity in central Canada if Millennium isbuilt, Vector said.
Vector predicts that if Millennium does not proceed, deliveriesto the northeastern U.S. will still increase via the Portland,Iroquois, Tennessee, National Fuel and Empire State pipelinesystems.
Gordon Jaremko, Calgary
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