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TransCanada to TransBig? Adds El Paso line, gas storage, solidifies N.A. ‘leading energy infrastructure’ role Gary Park For Petroleum News
Having pulled off a long-rumored deal by paying $3.4 billion, plus $670 million of assumed debt, for natural gas pipeline and storage assets owned by El Paso, TransCanada is making no effort to hide its ambitions.
Hal Kvisle, chief executive officer of the Canadian energy powerhouse, said the acquisition solidifies his company’s role as “the leading North American energy infrastructure” company, making it the “dominant player” in continental gas transport.
The purchase includes 10,500 miles of pipeline and 6.8 billion cubic feet per day of storage held by El Paso unit ANR.
Operating largely through its master limited partnership TC Pipelines, TransCanada is picking up El Paso’s 50 percent stake in Great Lakes Gas Transmission including 2,100 miles of pipeline and 2.5 billion cubic feet per day of storage.
TransCanada is already general partner in Great Lakes and will take over the operator’s role from an El Paso-TransCanada joint venture.
Company will have 40,000-mile network Once the deal is concluded, TransCanada will have a pipeline network covering almost 40,000 miles, offering its customers “unparalleled connections from traditional and emerging supply basins to growing North American markets” by covering the region from the Texas Panhandle and Louisiana coast to Michigan, while Great Lakes ties Western Canada in with the same Upper Midwest U.S. markets, Kvisle said.
He described the acquisition as a “unique opportunity to invest in regulated natural gas pipeline and storage assets that are a strong fit with our existing North American footprint.”
“These are high-quality assets that will strengthen our position as a leader in the North American gas transmission business and deliver significant value to our shareholders.”
In addition, Kvisle said, the El Paso assets will complement TransCanada’s expanding portfolio of energy infrastructure assets that include power generation holdings that range from a wind farm in Quebec to a 47 percent holding in Ontario’s Bruce nuclear power facility.
The company is also involved in two proposed liquefied natural gas projects, one in Quebec and the other off Rhode Island.
Kvisle was enticed by the ANR holdings because of the volumes of LNG coming into the Gulf Coast and the natural gas crossing the Rockies.
For El Paso, the restructuring is a chance to use $3.3 billion of after-tax proceeds to slash its debt of $14.5 billion in hopes of regaining an investment-grade rating.
El Paso Chief Executive Officer Doug Foshee described the sale as a “transformational event” that will allow his company to preserve its earnings outlook as North America’s largest interstate gas pipeline franchise, with about 43,000 miles of pipelines.
It will remain the dominant supplier to the U.S. West and East coasts via four pipeline systems.
TransCanada will have close to 12% of North American gas storage TransCanada said the deal will grow its gas storage capacity to 360 billion cubic feet, or close to 12 percent of the North American market, with the prospect of adding 100 billion cubic feet through expansions.
“We would see growth of that storage business or optimization of the operation of it as the big value-driver for us,” Kvisle said.
“In North America less and less gas is flowing to industrial demand, which typically operates on a 24/7 basis, and more and more is flowing to power generation, which operates a little more sporadically depending on demand for power and that’s a real upside with our ability to meet that kind of evolving market in the Great lakes region.”
He was not troubled by the addition of cross-border pipeline capacity at a time analysts are warning of a decline in the gas volumes that will be available for export from Western Canada.
“We see things flat to slightly declining, but the amount of the decline is relatively modest,” he said.
Gas storage used by producers to get best price Given the wild fluctuations in gas prices over the last 18 months, producers are turning to storage to hold gas off the market until prices climb.
TransCanada, operating like a broker, collects a fee for gas in storage and is counting on those fees rising as it adds to storage.
Russ Girling, president of TransCanada’s pipeline business, said storage capacity is becoming increasingly valuable in North America in response to widening summer-winter natural gas price differentials.
TransCanada, which has been on a growth path since 1999, was helped in the deal by the Canadian government’s plan to start taxing income trusts.
Since the trust decision Oct. 31, investors have turned to companies such as TransCanada, which pays a large dividend, and have helped push the company’s share value up by about 10 percent over the past two months.
William Lacey, a FirstEnergy Capital analyst, told the Globe and Mail that TransCanada’s access to capital has benefited from a “flight” by investors to blue-chip companies.
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