Natural gas marketers, which hadn’t given the proposedgreenfield Independence Pipeline and SupplyLink expansion a secondlook in the past, have signed up for firm transportation capacityon the controversial Midwest-to-East Coast pipeline projects, withone noting the projects were more appealing this time around. Giventhis support from marketers, sponsors say they now have enoughbinding agreements to meet FERC demands and move forward with theirprojects.
The associated Independence and SupplyLink projects “looked alittle more attractive to us than they did previously,” said MarkEvans, managing director of the Northeast region for Duke EnergyTrading and Marketing LLC, which signed up for firm capacity onboth. “It was just interesting…..the way they structured theirproject,” he noted, but he declined to give any further details.Because of this, “it represents an interesting opportunity for usnow…..It’s one that we want to have a chance to participate in.”
Independence and SupplyLink also drew the attention of DynegyMarketing and Trade, which subscribed to more than 600 MMcf/d ofcombined capacity on both. This makes the Houston-based marketerthe largest shipper on each project. Enron, too, couldn’t help buttake notice of the seemingly born-again projects.
Last Monday, the project sponsors filed with FERC what they saidwere binding precedent agreements with Duke Energy, Dynegy, Enronand other non-affiliated shippers that more than justify marketsupport for Independence and SupplyLink.
ANR Pipeline submitted agreements with four companiesrepresenting 78% of the capacity of its SupplyLink expansion, whilesponsors of Independence filed agreements with two companiesaccounting for 38% of the proposed greenfield pipeline’s capacity.The agreements for both projects were for primary terms of 10years.
The sponsors appear to have met the demands of the Commission,which in late April ordered Independence and SupplyLink to submitbinding, non-affiliated agreements for at least 35% of theirproject capacity within a 60-day period, which expired last Monday,or face cancellation of their pipeline projects. FERC took thisaction after the sponsors of Independence formed an affiliate tosubscribe to a large chunk of capacity on the proposed pipeline inorder to justify its need.
Independence, whose sponsors are ANR, Transcontinental Gas PipeLine and National Fuel Gas Co., said it has subscribed 350 MMcf/dof the proposed pipeline’s total initial capacity of 916 MMcf/d.Committing to the firm capacity were Duke Energy (50 MMcf/d) andDynegy 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 beevaluated on a net present value basis. They looked at all thenumbers…and did the calculations and decided for whatever reasonto accept only these two bids. That’s all we really needed to meetthe test that FERC had put out there,” said ANR spokesman JoeMartucci.
ANR said it had signed precedent agreements for 583 MMcf/d ofthe total 750 MMcf/d of new capacity that would be provided bySupplyLink, an upstream expansion of the pipeline’s existingsystem. The agreements were with Dynegy Marketing (304 MMcf/d),Duke Energy (50 MMcf/d), Enron (80 MMcf/d) and Cogentrix (148.5MMcf/d).
There was never any doubt among the projects’ sponsors that theywould meet FERC’s requirements, said Martucci. “We’ve always hadfaith in the projects, and it looks like the market has faith inthem too.” The capacity agreements “should be sufficient to haveFERC issue certificates” for the pipeline projects, which wouldtransport Canadian gas from the Midwest to East Coast markets. Butthe sponsors acknowledge that it could be another year before thetwo projects receive all the necessary regulatory and governmentalauthorizations, as well as the approvals of their boards ofdirectors, to begin construction.
Martucci declined to “talk about [specific] terms, conditions orrates” that were offered to potential shippers of SupplyLink andIndependence, saying this was covered by confidentialityagreements. He did note, however, that all were negotiated deals,with the rates “tied to the basis differential between Chicago andLeidy [PA].”
If the Commission should accept the project agreements as bonafide, the sponsors are hoping FERC will issue certificates in timefor SupplyLink and Independence to meet their targeted in-servicedate of Nov. 1, 2002 – about two years after the 1.1 Bcf/d AlliancePipeline is due to begin operation. Sponsors said they would notifyshippers by July 1, 2001 if the in-service date cannot be met.
SupplyLink, a 73-mile looping of ANR’s existing system, and the400-mile, 36-inch Independence line expect to be able to initiallyship to East Coast markets about 1 Bcf/d of the natural gas thatwill flow into the Midwest from Alliance and Northern BorderPipeline’s already-completed extension/expansion. The gas would betransported from Joliet, IL, to Defiance, OH, over the SupplyLinkexpansion, where it would then be picked up by Independence andshipped to the Leidy hub in Pennsylvania, which connects to anumber of existing pipelines that serve the Mid-Atlantic andNortheast gas markets.
The two projects have been pending at FERC since March 1997,during which time they have faced almost insurmountable oppositionfrom landowners and pipeline competitors. The critics claimed therewas insufficient market support for the projects, especiallyIndependence. Pipe competitors also proposed a number of systemalternatives that they said would void the need for the projects,but FERC staff in its final environmental review rejected theproposals.
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