Dramatic spot price changes are expected throughout the U.S.over the next two years following the construction of proposedmajor gas pipeline projects and development of gas reserves tosupport them. A new analysis released yesterday at GasMart Power’98, NGI’s annual energy conference, by ICF Kaiser focuses on howprices and volumes would shift following several likelydevelopments: the construction of Alliance Pipeline along withexpansions of Foothills/Northern Border, construction of the Vectorand Millennium projects to move gas from Chicago to East Coastmarkets, completion of the Sable Island project and associatedMaritimes and Northeast Pipeline moving gas down the East Coast andincreased gas production in the Gulf of Mexico.

“In some cases the changes will be positive, but in others theywill be negative. The largest impact will occur in the Northeastwith both the western Canadian gas and gas from the Sable Islandproject reaching those markets,” said ICF Kaiser’s Robert E. Baron.

If Northern Border’s expansion and Alliance come on line, pricesin the Midwest will fall by about 20 cents/Mcf, creating a dominoeffect across other regions. ICF predicts 90% of the new Canadiangas would displace U.S. supplies. Less Rocky Mountain gas wouldflow into the Midwest. Some Gulf Coast gas also would be backed outof the Midwest.

But gas prices would not fall in all regions of the country asmight be expected. The strong supply draw from new markets in theMidwest and Northeast would increase Canadian basin prices, and asa result California citygate prices would rise by up to five cents.That would attract increased supplies from the San Juan and Permianbasins. When the addition of the Vector, Millennium (or othersimilar projects targeting the Northeast from Chicago) andMaritimes pipelines is considered, California prices could rise byas much as 10 cents. But the Northeast-bound projects would slowthe price decline in the Midwest (down 15 cents), ICF predicts.Northeast prices, however, would plummet by up to 18 cents.

Increasing Gulf of Mexico production sends slightly differentshock waves, leading to even greater price declines in the Midwest(up to 30 cents) and Northeast (more than 21 cents) and smallerincreases in California (less than 5 cents).

ICF Kaiser’s predictions are based on results using its NorthAmerican Gas Model. For additional details call Robert Baron at(703) 934-3749.

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