Al / Alliance
You addressed your question to Kerm, but I hope you don't mind if I intrude. I've been pondering this for a while. I'm not in the industry, just a watcher who happens to live in Calgary and so gets to talk to oil & gas people from time to time. I may very well not know what I'm talking about. But "if it seems too good to be true ...."
The same questions you raised had been making me wonder if Alliance was a "paper pipeline", proposed simply to shake Nova out of the postage stamp. It didn't seem realistic to add all that takeaway capacity: given the rate of decline in new discoveries, the number of gas wells drilled would have to approximately double the 1997 level, and 1997 was a record.
Worse (to my mind), it got to the point last year where people simply started taking it for granted that Canadian gas prices would be MUCH higher within two years. Companies did presentations showing how their gas discoveries added "sure-thing" increments to 99/00 cash flows. The words "guaranteed" and "profit", when used together, make me very nervous.
With Nova and TCPL merging, and the Alberta Government backing down on the liquids question, Alliance seems less "paper" than it did a few months ago. As such it seems likely that, in the absence of some extraordinary discoveries in Alberta or BC, there will be significant unused pipeline capacity by the year 2000.
Alliance has negotiated contracts with a number of suppliers to provide gas. I don't know what percentage of their capacity has been so covered, but I've heard numbers like 80%. That suggests that the excess capacity will be in the pipes of existing carriers, which is one reason people like Foothills have such a hate on for Alliance. I suppose that raises the question of just what kind of contracts producers have with existing carriers -- would the penalty be so light from breaking a delivery contract with Foothills that the higher netback from Alliance is justified?
As for prices in the U.S., one argument has been that they'll have to build new connections from Chicago, so that the gas isn't confined within the existing Chicago distribution network. Even so, developments in the Gulf will begin to take on more importance for Alberta. Decline rates there have been more dramatic than in Alberta, but they have continued to make new discoveries, particularly with large, deep strikes, which have more than offset the declines. If that trend continues, we may find that Alliance has paid a lot of money to move gas from one over-supplied market to another. |
