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Pipelines feeling the pinch TransCanada hit by declining long-haul firm contracts; Westcoast Energy faces tougher competition out of traditional supply area in B.C. Gary Park Petroleum News Calgary Correspondent
Natural gas shippers on two of Canada’s main pipeline networks face sharp toll hikes if applications before the National Energy Board are approved later this year as the pipeline companies grapple with rising excess capacity on their systems.
TransCanada is seeking a return of 11 percent on a 40 percent deemed common equity component, while Duke Energy unit Westcoast Energy has proposed an 11 percent increase in tolls for firm transportation service on its southern leg in British Columbia.
TransCanada said it has seen long-haul contracts drop 35 percent since November 1998, just before the Alliance pipeline out of northern British Columbia came on stream.
Over the same period, the average remaining term under firm long-term contracts has dropped to slightly over three years from more than eight years in 1994.
TransCanada said the “net reduction in contractual underpinning of the system is far more significant once the migration to short-haul contracts and the reduction in remaining terms are taken into account.”
It said the shift to shorter contracts is expected to continue as all firm long-term shippers have a guaranteed renewal option that enables them to retain firm rights to access the system while making only a one-year commitment.
From November 1998 to January 2004, TransCanada said its long-haul firm contracts dropped 78 percent, but short-haul contracts soared 1,421 percent. Near-term supply in basin can’t fill capacity The company said the near-term gas supply in the Western Canada sedimentary basin can no longer meet intra-Alberta demand and fill all pipeline capacity out of Alberta.
“Optimism about long-term supply potential has been tempered by weak WCSB performance,” TransCanada said in its National Energy Board filing.
Even the prospect of Mackenzie Delta gas coming on stream by 2010 at 1 billion to 1.5 billion cubic feet per day will not offset the forecast decline of 2.5 billion cubic feet per day of conventional production.
The Canadian Association of Petroleum Producers and the Industrial Gas Producers Association of Canada are both uneasy about TransCanada’s application, but their plans for intervention are not yet known.
Westcoast cites Westcoast cities 2 bcf per day excess capacity Westcoast, the dominant carrier within British Columbia, said Western Canada gas deliverability exceeded pipeline takeaway capacity by 1 billion cubic feet per day in 1997. Now there is about 2 billion cubic feet per day of excess capacity.
It said the surplus space has “resulted in significant competition between pipelines for the available gas supply.”
Nor is Westcoast the monopoly carrier out of its traditional supply area in northeastern British Columbia. TransCanada subsidiary Nova Gas Transmission opened a high pressure 42-inch line adjacent to the British Columbia/Alberta border in 1995, the Alliance pipeline can transport 300 million cubic feet per day from the Fort St. John gas supply area and several smaller pipelines have connections from British Columbia to Nova’s Alberta network.
Because of these new alternative market opportunities, Westcoast said it faces “greater competitive risk in its supply area and corresponding increased uncertainty whether it will be able to maintain existing high levels of contracted capacity.”
Although Westcoast conceded it has not experienced major underutilization of its facilities in recent years, it said 136 million cubic feet per day was turned back as part of its annual contract renewal in September 2002 and another 198 million cubic feet per day was not renewed effective Nov. 1, 2004.
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