Alliance Gas Pipeline: Early, Late, or Just in Time?

 

A story of big gambles, big assumptions, and spark spreads now turned upside down.

Major battles are being fought over the movement of natural gas from Canadian soil to U.S. homes and businesses. Spurred by the new Alliance pipeline system, and its aggressive bid for market share, pipeline companies are fighting for shippers to use their systems for moving gas. And now, just in time for the pipeline's assumed startup date of Oct. 30, comes a dramatic rise in natural gas prices, bringing both good news and bad for all those who cast their lot with the pipeline, betting on market assumptions formed years ago.

The dynamics are complex-even counterintuitive. Each new development can undo the best of plans.

In the pipeline wars, in the battle for shippers, the shakeout already has begun. Canada's large natural gas pipeline company, TransCanada, is losing share to Westcoast Energy, the firm that has the most riding on the success of Alliance. Westcoast has large equity interests in both Alliance and Vector, a new U.S. pipeline that will connect indirectly with Alliance at its downstream end to help carry gas past Chicago and on to East Coast markets. Alliance, rooted in the Western Canadian Sedimentary Basin (WCSB), the major producing area in Canada, offers several potential advantages over longer lines. With a newer plant, it offers greater efficiency and promises greater flexibility to shippers. It also distinguishes itself in competition by its ability to diversify and transport raw material for the chemicals industry.