Current and projected economics will not support any of themajor pipeline expansions to the Northeast from the Midwest atleast until 2004, a new study by Energy ERA, a Calgary, AB-basedenergy consulting firm, concludes. The Portland Natural GasTransmission and Maritimes &amp Northeast pipelines as well as thepipeline expansions currently planned in the Gulf of Mexico will besufficient to meet growing gas demand in the Northeast over thenext few years.

Energy ERA said despite the flood of new supply expected toarrive in the Midwest via Alliance Pipeline, the Northeast will notbe ready to absorb the surplus supply in the next five years.

Other secondary conclusions of the study, which is titled”Northeast Natural Gas: Pipeline Infrastructure &amp MarketDynamics,” include the likelihood there will be a major capacityturnback problem for Midwest-bound U.S. pipelines and that therewill be no need for additional seasonal storage in the Northeastand Midwest over the forecast period of the next 16 years ifseveral of the proposed Midwest-to-Northeast pipelines are built.

The study also took a close look at the gas price impact of eachplanned pipeline and all of the 2.8 Bcf/d of capacity proposed inaggregate. It estimated that a scenario involving nine proposedpipeline expansion projects that eliminated major overlappingprojects – one involving only Vector and Millennium rather thatIndependence and MarketLink for example – would cause an average$0.30/MMBtu price decline at New York City, a 22-cent drop at theDawn Hub in Ontario, a 10-cent drop at the Henry Hub and Chicago,and a 21-cent increase at the AECO C hub in western Canada.

The scenario includes the additions of Alliance, Vector,Millennium, PNGTS 2nd Expansion, Iroquois Expansion, TransCanada1999 Expansion, Trunkline abandonment, Columbia Gulf Expansion andNorthern Border 2000. The price impact would be only slightlydifferent if Independence replaced Vector-Millennium. The priceimpacts of other projects, including TriState, Great Lakes 300, anda second Iroquois project, also are examined. The conclusion isthat the gas market in the entire Northeast quadrant of thecontinent is in for some major changes over the next few years.

“It’s very substantial, but I wasn’t surprised,” said KenVanderSchee, an analyst with Energy ERA, “Our study was based onhistorical usage, price differentials, and pipeline capacity, andwe found that the Northeast prices are very reactive to theexpansions.” The study predicted for the winter of 2001, New YorkCitygate prices without any expansion would be (U.S.) $2.95/MMBtu.Taking into account the first scenario of planned expansions, thestudy estimated the price will be $2.61.

Economics are not favorable now and clearly won’t be favorablefor some time. “That’s not to say the moment some of these projectsopen, there will be no gas flowing through them,” VanderSchee said.”All we’re saying is that the study indicates it will be a whilebefore the transportation costs become more than the toll charges.”

The 150-page study is available on a confidential multi-clientbasis. For more information, see the notice at John Norris

©Copyright 1999 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.