The future of western Canada’s natural gas industry could depend on pipeline company TransCanada winning regulatory approval of a new long term fixed price (LTFP) toll for gas deliveries to eastern Canada.
In hearings before Canada’s National Energy Board (NEB) this week in Calgary, Nick Schultz, counsel for the Canadian Association of Petroleum Producers, said that without Dawn LTFP, western Canadian producers would be hard-pressed to compete against a potential flood of natural gas coming into eastern Canada from the Marcellus and Utica shale basins in the US.
“Without this new service, the viability of western Canadian supply is in jeopardy,” Schultz told the NEB hearing panel. “Supply cannot be developed without access to market. Without long-haul shippers, the viability of the long-haul Mainline investment is in jeopardy.”
TransCanada developed the LTFP service earlier this year after a previous attempt to attract long-term shippers on its Mainline with a toll of C$0.82 ($0.67)/GJ failed to win producer support in an open season last year. The latest proposal offers a flat toll of C$0.77/GJ to 23 producers who have committed to ship 1.5 PJ/day (about 1,423mn Btu/day) for a maximum of 10 years from Empress, in eastern Alberta, to the Dawn hub in southern Ontario.
That compares with the current firm transportation toll from Empress to Dawn of C$1.86/GJ.
But Don Davies, counsel for four producers who have signed up for the service, says the choice before the board isn’t really about the level of the toll, but about the existence of the incentive service itself as a way to ensure the viability of the Mainline.
“The choice here, Mr. Chairman and Members, is not between having the Dawn LTFP service at a toll of C$0.77 or having the service at a toll of C$1.86,” he said. “The choice here is between having the Dawn LTFP service at the toll of C$0.77 or not having the service at all.”
There has been a steady decline in long-haul service on TransCanada’s Mainline as shippers opted for cheaper short-haul and interruptible transportation services, TransCanada counsel Sander Duncanson told the hearing.
Mainline deliveries from western Canada to Dawn have also been impacted by the addition of new facilities to bring incremental supplies of Marcellus and Utica gas in from the US, he said. And small volumes of western Canadian gas currently flowing through the Mainline to Dawn are expected to be displaced by new competitive pressures, largely from the proposed Nexus and Rover pipelines, both of which will also move US shale gas into Canada.
One of two partners in Nexus is Spectra Energy Partnership, owned by Enbridge. Enbridge also owns Enbridge Gas Distribution and Union Gas, both of which oppose Dawn LTFP.
Dawn LTFP service, Duncanson said, addresses many of the competitive pressures currently facing the Mainline, and is expected to generate net revenue over the term of the contracts of about C$2 billion – revenue that would not otherwise occur on the Mainline – and helping to reduce tolls and increase toll stability over the long term for existing Mainline shippers.
Enbridge Gas Distribution – Canada’s largest gas distribution company – disputed that contention, suggesting that extending LTFP beyond 2020, when a new segmented cost of service toll structure is expected to be developed for the TransCanada system, in fact introduces greater levels of uncertainty.
“TransCanada has not provided any evidence on how the provision of Dawn LTFP service will affect the tolls of existing Mainline shippers who are currently backstopping the Mainline cost of service through to the end of 2020,” Bernard Roth, counsel for Enbridge, told the panel. “The uncertainty created for Mainline shippers further increases beyond 2020 and throughout the 10-year term of the Dawn LTFP contracts.”
With that level of uncertainty, Roth said, if the NEB approves LTFP service, it should only approve it for the period until 2020, a position supported by Union Gas.