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Spectra Energy Corp. (SE - Analyst Report) has finally received the US Federal Energy Regulatory Commission’s (FERC) nod for its proposed New Jersey-New York (NJ-NY) pipeline project.

Although this will be the first-ever major natural gas pipeline linking the two cities, the project faced opposition from local groups, including environmental and others entities, relating to the drilling method involved in the Marcellus Shale. They claimed that water supply will be contaminated by hydraulic fracturing or fracking while tapping gas in the shale rock formation as it involves the explosion of rock with chemical-laced water and sand under the surface.

In response to this, FERC conducted a thorough review of the NJ-NY Expansion Project's Implementation Plan. Only then did the authority issue approval for the construction of the $1.2 billion natural gas pipeline.

Spectra adopted several precautionary measures that involve the usage of a 30-inch diameter pipe with thicker walls than specified by federal regulations, a 42-inch diameter pipe in other segments and the utilization of horizontal directional drilling for important water crossings. Importantly, the lines will also be placed much deeper relative to the other usual pipelines.

This approval will expand Spectra’s existing Texas Eastern Transmission and Algonquin Gas Transmission pipeline systems and will connect New York with its neighbor New Jersey. This 20-mile (32-kilometer) line will stem from prolific shale deposits in Pennsylvania.

It will deliver approximately 800 million cubic feet of natural gas per day across New Jersey and New York and will have a direct connection with Con Edison on the lower west side of Manhattan. It will also connect Public Service Electric and Gas in Bayonne and Jersey City, New Jersey.

In response to the country's growing supply of natural gas, New York City aims to replace the polluting fuels like No. 6 by 2015 with the environment friendly as well as economical natural gas. The project is also expected to provide the much-needed energy to homes and businesses along with employments across the area, while generating the required money in tax revenue.

The region will likely be freed from 6 million tons of carbon dioxide per year, which is equal to more than 1 million cars. Spectra aims to commence operations in November 2013.

We see an upside from Spectra’s diverse near- to medium-term projects, including its New Jersey-New York pipeline, an NGL pipeline in Texas, opportunities in the Gulfstream Pipeline and infrastructure to serve western Canada LNG exports.

However, the company’s results are vulnerable to fluctuations in natural gas markets. The proposed liquid-rich drilling activities by the energy companies clearly suggest that low natural gas prices have little ability to pick up in the near term.

Hence, we maintain our long-term Neutral recommendation for the company. Spectra, which competes with Kinder Morgan Inc. (KMI - Analyst Report), retains a Zacks #3 Rank, equivalent to a Hold rating for a period of one to three months.

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