|
Testing times loom for pipelines Shippers give thumbs up to Canada’s pipelines; National Energy Board says debate builds around shipping arrangements and tolls Gary Park Petroleum News Canadian Correspondent
For more than four years, the mainline crude and natural gas pipelines of Enbridge and TransCanada, respectively, have been operating well below capacity, with only the Alliance gas system functioning at its peak, a National Energy Board report shows.
Based on a survey of shippers, the federal regulator, in its first report focusing on hydrocarbon transportation, said pipeline users give a high rating to the physical reliability of the systems and are generally satisfied with the services provided by the companies.
The level of satisfaction was partly reflected in the fact that less than one-quarter of shippers responded to the survey.
But there are clouds building in the view of respondents, who would like to see more competitive tolls, more continuous improvement and innovation and a more collaborative and reasonable method of resolving differences.
To that, the Canadian Energy Pipeline Association said the call for more competitive tolls was normal, while shipping arrangements are increasingly being negotiated through settlements rather than costly, contentious toll-and-tariff hearings.
The system moves more than C$100 billion in petroleum products and natural gas each year, with export revenues amounting to C$59 billion in 2004, representing 15 percent of total Canadian exports. Ample gas carrying capacity The National Energy Board reported that the flattening of conventional natural gas production in the Western Canada Sedimentary Basin in recent years has ensured that there is ample carrying capacity. That excess has given producers “flexibility to access their market of choice.” Canadian gas exports to the United States hit a record C$26.5 billion last year.
On the crude side, a greater variety of oil types from the basin are finding their way to Canadian and U.S. markets, despite tightness on Terasen’s Trans Mountain Pipe Line to the Burnaby refinery in the Greater Vancouver area, and producers are convinced there is a need for even greater access to heavy crude markets in the United States.
The answer over the next decade, according to a spokesman for the Canadian Association of Petroleum Producers is a combination of expanded pipelines and more upgraders (with seven on the drawing boards). Long-term uncertainties stemming from LNG Over the longer term, the regulator said there are uncertainties in the pipeline sector, stemming from the number of liquefied natural gas terminals proposed for North America and the impact those might have on supply and demand and on North American gas flows. Within Canada, Ontario’s decision to remove 7,500 megawatts of coal-fired power generation capacity from its system and to not spend C$1.9 billion refurbishing a major nuclear plant, could affect domestic gas flows.
The board said the leveling off of gas production in Western Canada and the introduction of the Alliance pipeline from northeastern British Columbia to Chicago has changed the equation for older pipelines that are experiencing a sharp drop in long-term shipping contracts.
A Canadian Energy Pipeline Association spokesman said the industry may be forced to look at ways of reviving longer-term contracting to back-stop large pipeline projects, such as the Mackenzie Delta and Alaska projects, which require heavy financial commitments.
The regulator said that although the erosion of long-term contracts has not yet impaired the cost-of-service framework, “new tolls design structures may need to be considered to equitably share costs and maintain the system’s competitiveness.” Board finds pipeline companies financially sound Looking to the bottom line, the board said regulated pipeline companies are financially sound, which is crucial to investors, given the long life of assets and their need to be reasonably assured of the existence of long-term supply and markets.
The board said its regulatory challenge is to provide a fair and effective process that does not distort investment decisions that should be made in the marketplace.
It said new investment can be frustrated when regulatory processes and timelines are stretched out and unexpected hurdles appear. The end result then is that costs to energy users rise as development of new supplies is constrained.
Since the start of 2001, the Alliance pipeline has operated at 1.4 billion-1.6 billion cubic feet per day (with 1.325 bcf per day of contracted capacity); TransCanada’s mainline has fluctuated over a narrow band over either side of 6 bcf per day; Enbridge has fluctuated since 2000 at 68 percent to 86 percent of capacity and stayed close to about 2.2 million barrels per day; and Terasen ran at near capacity in 2003 and 2004, prompting a program of expansions.
On a scale of one to five, the survey respondents rated the overall quality of service at 3.78, climbing to 4.13 on the physical reliability of pipeline operations and dropping to the lowest level on 17 questions of 3.12 when asked whether transportation tolls were competitive.
| 