Alliance Shuts Natgas Pipeline; Chicago Prices Up

Alliance Pipeline shut its Western Canadian 1.6 bcfd pipeline that feeds natural gas to Chicago on Friday after poisonous, flammable gas got into the system, forcing at least five producers to curb output and lifting Chicago prices.

The company declared force majeure on the 2,400-mile (3,850- km) pipeline, which delivers gas from Western Canada and North Dakota's Williston Basin to the Chicago market. It accounts for about a third of Canada's daily net exports to the United States.

It did not give an estimate for when it would restart.

Alliance, a limited partnership owned by affiliates of Enbridge Income Fund Holdings and Veresen Inc, told shippers late on Thursday that hydrogen sulphide, a hazardous gas, entered the mainline pipeline system as a result of complications experienced by an unnamed upstream operator.

Seven Generations Energy Ltd and RMP Energy Inc were forced to shut in essentially all their production after Alliance called for suppliers to suspend injections for an indeterminate period, starting on Friday morning.

NuVista Energy Ltd and Crew Energy have also suspended a portion of their output, as did Cequence Energy Ltd. In a statement, Crew said it expected service to resume in three to four days.

Gas prices in Chicago <MC-CHICIT-IDX>, one of the biggest U.S. hubs where most of the Alliance pipeline gas ends up, rose about 7 cents to $2.91 per mmBtu on Friday on the news.

"Downstream prices around the Chicago market may increase as alternative sources of supply are sought, though, milder weather and the coming weekend may limit a rally," analysts at energy intelligence firm Genscape said in a note.

Genscape said upstream producers that do not shut in production will likely redirect gas to Spectra Energy's Westcoast systems or TransCanada Corp's NOVA pipeline in Canada.

ICE next-day gas prices at the Kingsgate hub on the U.S.-Canada border, which moves gas from the TransCanada system in British Columbia to the U.S. West Coast, were down about three cents to $2.48 per million British thermal units.

Some other next-day gas prices in the U.S. Northwest at Stanfield <W-PGTSFP-IDX> and Malin <W-PGTMAL-IDX> in Oregon were however slightly higher.

Alliance spokesman Rob Gray did not give details of how the hydrogen sulphide gas entered the system and said the company's first priority was to manage the situation safely.

It plans to get rid of the natural gas affected by flaring it at its Alameda compressor station in Saskatchewan.

(Additional reporting by Scott DiSavino in New York)