The Millennium Pipeline project is off life support after receiving the equivalent of heart bypass surgery. A new precedent agreement with the Northeast’s largest gas distribution company, KeySpan, and an alternative upstream link to supply through the Empire State Pipeline system have breathed new life into the project, according to its sponsors.

The $700 million Millennium Pipeline appeared dead as recently as last month when the Commerce Department rejected its appeal of a state decision to block the project. The pipeline already has been approved by the Federal Energy Regulatory Commission. Utilizing the Coastal Zone Management Act (CZMA), New York state officials stopped Millennium because of the environmental impact of its Hudson River crossing, which would go through the sensitive Haverstraw Bay area.

Millennium is still fighting that battle in court, but has divided its project up into two phases, the last of which would include the river crossing. On Friday, pipeline sponsors filed an appeal in the U.S. District Court for the District of Columbia, requesting that the Commerce Department’s Dec. 15, 2003 ruling on its CZMA appeal be overturned.

“We’re continuing to pursue clearance for the [Hudson River] crossing. We’re hopeful that this [court] will help resolve and get that piece moving forward, but we couldn’t hold up the rest of the project waiting for that to happen,” said Karl Brack, a spokesman for Columbia Gas Transmission. “We have shippers, KeySpan most notable of those, who see the need for the energy now, and so we moved forward with phase one even as we continue to work out these issues on phase two.”

The first phase of the new project design would bring about 500,000 Dth/d of gas 186 miles from a new connection with National Fuel Gas’ Empire State Pipeline in Corning, NY, and various other previously proposed and existing connections to a delivery point at Rampo, NY.

Phase 1 still includes expanding the existing Columbia Gas pipeline system in New York, but the previously proposed Lake Erie crossing has become only an “option” because of the addition of Empire State to the project, said Brack. Empire will provide access to about 250,000 Dth/d of Canadian gas imports through a proposed expansion of its existing system and an 83-mile extension of Millennium from Rochester to Corning.

Millennium partner TransCanada PipeLines also has agreed to expand its system upstream of Empire to provide more gas transportation capacity between the Dawn Hub in Ontario to Empire at Chippawa, NY.

Millennium plans to file an amendment to its existing application with FERC and hopes to have the first phase of the project in service in November 2006.

The second phase of the project would preserve all of the features of the current proposal downstream of Rampo, NY, to New York City. Millennium said it has not altered the controversial Hudson River crossing or the route through Westchester County. However, it also has not yet set an in-service date for Phase 2.

One of the most significant changes to the project is the addition of KeySpan, which is contemplating signing an agreement to take up to 150,000 Dth/d of the proposed capacity. KeySpan serves more than 2.5 million gas customers in the Northeast, is New York’s largest investor-owned electric generator and operates the Long Island Power Authority electric system serving 1.1 million customers. Having such a large New York City presence behind the project would provide significant new support for its development.

In fact, National Fuel CEO Philip C. Ackerman said the possibility of having KeySpan on board made Empire State’s decision possible. “KeySpan’s market support for this project is an important step for developing this additional upstream link to the Millennium system and to create opportunities for new and existing customers,” said Ackerman. “We are now poised to expand the Empire system to create a much-needed supply path for natural gas to reach customers in New York State and the Northeast.”

However, the extent of KeySpan’s participation in the Millennium project is still unclear. KeySpan CEO Robert B. Catell lauded the project as “critical to the clean energy future of the Northeast region.” He said KeySpan probably would be one of its largest customers. “We see these pipelines as critical additions to the energy infrastructure of the Northeast,” said Catell.

“Millennium, Empire and the TransCanada infrastructure can provide KeySpan with access to new, economically priced sources of natural gas supply, enhanced storage options and added delivery capacity to meet the needs of our customers,” he said.

But according to KeySpan spokeswoman Diana Parisi, the company still has not “executed the agreement” for Millennium Pipeline capacity. It also still has not determined how it would get any gas flowing on Millennium into New York City without Phase two being built. Parisi said KeySpan might have to rely on the proposed 400 MMcf/d Islander East project for service into the city.

“A lot of it really depends on the Islander East project,” she said. But state officials, who appear to be fiddling while New York City freezes (or pays very high prices), have also blocked Islander East for environmental reasons using the CZMA. Islander East sponsors KeySpan and Duke Energy are awaiting the Commerce Department’s decision on their CZMA appeal. Meanwhile, Connecticut’s attorney general last week declared the Islander East project dead because of a separate state ruling (see Daily GPI, Feb. 10).

Parisi said KeySpan possibly could still utilize some of the Millennium Phase 1 capacity to bring gas into New York City on the existing Texas Eastern Transmission system. It may end up bringing the gas to Boston rather than New York, she said.

Whether it’s for Boston or New York, new pipeline and storage capacity definitely is needed throughout the Northeast, where there were record high spot gas prices this winter.

While prices in the Gulf Coast remained relatively stable, average daily gas prices in New England and New York City exceeded $50/MMBtu on Jan. 14 for Jan. 15 gas flows. Transco Zone 6 deliveries into New York City averaged $44.81 that day and reached a high of $72. Prices at Iroquois Zone 2 in New York that day reached the highest level ever recorded in the spot market, $76.

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