New Alliance pipeline being promoted to move Arctic gas

Line's start-up rate of 1.3 billion cubic feet per day can be expanded to 3.4 billion cubic feet a day

Gary Park

PNA Canadian Correspondent

A major new contender to carry natural gas from the U.S. or Canadian Arctic through Canada to the Lower 48 has been added to the mix.

Calgary-based Alliance Pipeline Ltd., owned by five of North America's largest gas companies, is now in business, linking gas fields in northern British Columbia and Alberta with the Chicago hub.

The C$4.7 billion, 2,200-mile pipeline opened more than a year behind its original schedule, was C$1.3 billion over budget and encountered four delays in the commissioning phase.

But, for now, those stumbles have been overshadowed by the emergence of the first true competition in the shipment of Canadian gas from its dominant producing region to its dominant markets in Eastern Canada and the U.S. Midwest.

“We're going from a near-monopoly situation to having some choice and some alternatives. It's the first time that Western Canada's producers have had those options,” said Stephen White, president and chief financial officer of Fort Chicago Energy Partners LP, the largest Alliance affiliate with a 26 percent stake. (The other partners are Westcoast Energy Inc. 23.6 percent, Enbridge Inc. 21.4 percent, The Williams Companies Inc. 14.6 percent and Coastal Corp. 14.4 percent.)

More gas may be needed

But Alliance's survival may eventually need Arctic gas to offset a looming supply crisis in the Western Canadian Sedimentary Basin.

A recent producer survey by the Canadian Energy Research Institute indicates the early gas flow through Alliance will only displace volumes now carried on other systems, with no measurable growth in gas deliverability from the WCSB expected before 2003.

The supply crunch stems largely from the reluctance by producers to direct their record cash flows into drilling the deep gas plays of the Canadian Rockies, where the geology is complex and wells are expensive compared with the shallow pools of southern Alberta and Saskatchewan.

As a result, the WCSB has barely been struggling to replace Western Canada's production decline of 2 billion cubic feet per day from older wells at a time when it is assumed an incremental 1 billion cubic feet per day is needed to meet rising demands from U.S. markets.

“With the continued natural decline from the WCSB, it will take a major drilling effort just to maintain deliverability, let alone add to it,”said Ed Porter, vice-president of The Consumers' Gas Company Ltd., a unit of Enbridge.

Although the Alliance partners are focused for now on offering dependable service for their 37 contracted shippers, some producers are quietly promoting the notion that the pipeline could eventually play a role in Arctic development.

Role in Arctic promoted

“In Alberta, drilling is increasing. Production is declining. Demand is going up. The same thing is going on in the U.S., except even more severely,”said Anderson. “So you ask yourself, 'Where are we going to get the gas to supply the North American market if it isn't from the Arctic?'”

If production of Arctic gas does proceed, Alliance — as Canada's most northerly gas pipeline system — is strongly positioned to compete with the TCPL, Enbridge and Westcoast for shipping rights within Canada.

It is also designed to expand its start-up capacity of 1.3 billion cubic feet per day to 3.4 billion cubic feet per day, easily enough to handle the expected Arctic flows.

“Alliance showed tremendous entrepreneurial spirit, skill and courage in getting this far. Anyone who doubts its ability to knock off its bigger rivals and capture the Arctic prize is making a serious error in judgment,”said one analyst, who asked not to be identified.