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Alliance Pipeline overhauls services to respond to changing gas market

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CALGARY - Alliance Pipeline says it needs to overhaul the services it offers customers as a result of upheaval in the North American natural gas market.

The company aims to make a "menu" of different options available to natural gas producers instead of locking them in to 15-year contracts to ship gas straight from northeastern British Columbia to the Chicago area.

The changes, if approved by Canadian and U.S. regulators, will enable customers to choose firm contracts as short as three years and as long as 10, feed gas that's more liquids-dense into the pipe and access a new Canadian trading pool.

Under the new system, customers will be able to "tailor fit" the services they need, CEO Terrance Kutryk said in an interview Friday, a day after Alliance submitted its proposal to the NEB. For the U.S. side, Alliance plans to an application to Federal Energy Regulatory Commission next year.

"What we've got right now is what we believe is one of the most flexible, full of options and rich-gas, producer-friendly alternatives that's available today," said Kutryk.

Alliance — jointly owned by Enbridge (TSX:ENB) and Veresen (TSX:VSN) — wants the new service offering to be in place for Dec. 1 of next year, when current contracts are set to expire.

When the more than 3,700-kilometre pipeline started up in late 2000, 37 shippers signed up for 15-year firm contracts. However, a decade later, most of them declined to renew those contracts, Alliance said in its application to the NEB.

"As a result, effective 1 December 2015, approximately 92 per cent of previously contracted capacity will become available to the market," it said.

The market landscape differs greatly from when Alliance was first built. Low prices in recent years have caused natural gas drilling to slow and more and more gas is staying in the Alberta market to fuel oilsands development, the application says. At the same time, new gas resources from the northeastern United States have been competing with Alberta gas in the Central Canada market.

Many of those dynamics were at play when fellow gas shipper TransCanada Corp. (TSX:TRP) decided to convert a portion of its underused cross-Canada natural gas mainline to oil service for its Energy East pipeline, so that western crude can be fed to Eastern Canada refineries and exported off the East Coast.

Alliance also notes producers have been turning a greater focus to natural gas that's rich in valuable liquids present in several shale formations along its route. The huge Aux Sable plant near Chicago processes liquids-rich gas that travels on Alliance.

Alliance's new offering "reflects a more dynamic and flexible market-focused approach under which Alliance will assume a considerably higher degree of business risk," the NEB application says.

"In turn, Alliance is seeking the necessary tariff, toll and service agreement flexibility to effectively respond to evolving market conditions. The new services offering is designed to ensure the long-term economic viability of the Alliance Pipeline."

The new services were the culmination of about three years of discussion with customers, said Kutryk.

"It's a very competitive market place right now and I think that's why we spent a great deal of time and effort with the producing community to understand what their needs and requirements are," he said.

"I think it's a process of building trust and building understanding. It's also a process that takes some time as markets and conditions evolve."

Follow @LaurenKrugel on Twitter

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