CALGARY – Canadian natural gas producers have been forced to shut in their production after Alliance Pipeline L.P. declared a force majeur Tuesday on its export pipeline to Chicago, which analysts say will negatively affect gas prices.

Alliance Pipeline, a joint venture between Enbridge Inc. and Veresen Inc., announced that heavy rain in northwestern Alberta caused sections of its mainline, which delivers 1.6 billion cubic feet of gas per day to Chicago, to shift and the company would reduce service on its line as it investigates the problem.

The line’s outage is impacting 500 million cubic feet of natural gas production and would negatively affect gas prices at the Station 2 pricing hub in B.C. and the AECO pricing hub in Alberta, Solomon Associates director, gas services Cameron Gingrich said.

Given large volumes of gas production and limited pipeline capacity, producers face price discounts at both Station 2 and AECO relative to the price of gas at important hubs in Ontario, Chicago and Louisiana.

“We’re short on capacity in that area already,” Gingrich said, adding that a handful of producers may be able to send their gas on TransCanada Corp.’s system in the area but others would need to shut in gas production as most gas pipelines are full.

“We’re producing in Western Canada 15 to 16 (billion cubic feet per day) so 500 (million) is a material amount,” he said.

Crew Energy Inc. announced Tuesday it would shut in all of its production in the Montney formation, a growing gas play where many companies are active, until the Alliance exposes the pipeline and resumes shipments.

Crew, which did not respond to a request for comment, said the outage would affect 90 thousand cf/d of its natural gas production and another 18,000 barrels of liquids production per day.

“This event further highlights the importance of maintaining multiple egress options for Western Canadian natural gas production,” the company said in a release.

The Alliance system is a critical export pipeline for Montney producers because it can accommodate both gas and liquids like propane, ethane and pentane, which are byproducts of shale gas production. Earlier this year, high demand for the line caused Alliance to ask gas producers to commit 500 million cf/d more gas to an expansion project on the line.

Alliance said in a release the current service reduction could be three to five days “but may be extended if additional inspection or repair work is required.” The company did not respond to a request for comment.

“I would think they’d be able to solve this in short order but it might take longer-term enhancements as we get out to the summer,” Gingrich said.

Canadian Natural Resources Ltd., the largest natural gas producer in the country, is affected by the Alliance force majeur but spokesperson Julie Woo said the interruption “will be immaterial to our overall operations.”

Cenovus Energy Inc., which recently acquired natural gas assets in a $17.7-billion deal with ConocoPhillips, was partially impacted by the pipeline shutdown, spokesperson Reg Curren said, but would not provide details on volumes.

Seven Generations Energy Ltd., a major shipper on Alliance, said its liquids-rich gas production is downstream from the affected portion of the pipeline. “Our production carries on,” spokesperson Alan Boras said.

Financial Post

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