Alliance pipeline won௿½t lower U.S. gas prices, analyst said

Dec. 26, 2000à‚–With natural gas prices at about $10/Mcf compared with $2.44 one year ago, Canadian gas flowing into the U.S. on the new Alliance pipeline won௿½t help push prices down, said Marshall Adkins, analyst with Raymond James & Associates. Industry observers had expected that new pipeline capacity into the U.S. would bring new resources to the market and keep prices reasonable.

He also warns not to expect much near term relief from Canada despite the added pipeline capacity.

௿½New volumes of gas from Alliance are just shifting Canadian gas from one transportation system to another. Don௿½t look north for a solution to the pending U.S. natural gas crises,௿½ Adkins wrote in a report released today.

The Alliance pipeline transports gas from Northeastern British Columbia to Chicago, Ill. Just two months ago it started transporting gas ramping up volumes to near full capacity of 1.3 bcfd. Another pipeline, the Northern Borders Project began shipping gas two years ago from central Alberta to the U.S. Midwest. Both of these pipelines were proposed when there was substantial surplus of natural gas deliverability in Canada. But subsequently, deliverability has deteriorated considerably since the two pipelines became operational.

Canadian decline rates are approaching 25 to 30%, Adkins said. This means that Canadian producers must continue to rapidly increase activity just to offset natural declines.

௿½Canadian producers are hard-pressed to actually increase production. Incremental pipeline capacity will likely remain unfilled,௿½ he said in the report.

The new Alliance pipeline while operating at near full capacity is just taking gas from TransCanada௿½s TCPL pipeline system. Alliance got commitments from producers years before the pipeline became operational. So now, according to Adkins, there is a decline in the amount of gas going into TransCanada௿½s system. For example, Alliance began flowing about 500 Mmcfd in November but TransCanada showed that gas receipts and therefore volumes had declined by 600 Mmcfd compared to last year.

Meanwhile, Canada௿½s producers are trying to accelerate drilling activity. The Canadian Association of Oilwell Drilling Contractors has launched a national recruiting campaign for 3,000 more field workers, he said.

Adkins concludes that despite producer efforts, the new Alliance pipeline has brought no new Canadian gas to the U.S. and Canadian gas production has not kept pace with the expanding gas pipeline capacity.

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