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Gas producers turn on TransCanada Industry joins forces in opposing TransCanada’s application to shift costs from underutilized Mainline to Alberta’s Nova system Gary Park For Petroleum News
For more than 40 years, natural gas producers in Western Canada had only one option if they wanted to sell their output in the big markets of Eastern Canada or the United States.
They had to do business with TransCanada, which meant they mostly kept any unhappiness with the company to themselves in return for gaining access to the 6 billion cubic feet per day Mainline system.
Then the Alliance pipeline took shape in the late 1990s, causing a rancorous competitive clash in the process.
For the first time, some producers were sufficiently emboldened to unburden themselves of long-suppressed feelings about TransCanada.
But seldom, in the 54 years since the Mainline started deliveries, have gas producers been as forthright as during the final phase of a marathon National Energy Board hearing that could determine the future of the system.
Years of frustration It was like years of bottled-up frustration with TransCanada poured out.
No one could recall a previous case when the top guns in the producing sector talked openly about the problems they are having with the collapse in commodity prices and the loss of market share and took the chance to retaliate against TransCanada’s application to raise tolls on its wholly owned Alberta-based Nova pipeline system to offset a slump in volumes on its Mainline.
Three industry giants — Dave Collyer, president of the Canadian Association of Petroleum Producers; Murray Edwards, chairman of Canadian Natural Resources; and Randy Eresman, chief executive officer of Encana — essentially warned the NEB that unless the tolling dispute could be resolved, the Mainline could end up a “stranded asset,” which CAPP described as being an asset that could not be revived through tolls over the economic life of the line.
Collyer said that if TransCanada was unable to recover its lost volumes — currently it is carrying about 4.4 billion cubic feet per day, about 1.6 billion cubic feet per day short of capacity — “we’ll be back in front of you (the NEB) debating a stranded investment.”
That possibility clearly troubled NEB Chairman Gaetan Caron, who said the prospect is one the federal regulator has never before had to face.
However, Collyer softened his argument somewhat by saying he was not calling for a writedown of TransCanada assets, or any other specific measures, for as long as CAPP believed TransCanada could win back long-haul volumes.
8,800 miles The 8,800 mile Mainline runs from the Alberta-Saskatchewan border to Eastern Canada, with connections into the United States, making it the world’s longest gas transmission system.
In its statement to the NEB, CAPP said “the current method of regulation, with its virtual guarantee of cash flow certainty, lacks accountability for day-to-day decisions. TransCanada seeks to preserve that cash flow certainty by inappropriately seeking to broaden its base of ‘shippers’ who are responsible for Mainline costs to include (Nova system) shippers.”
“TransCanada needs to be in a position where it is more at risk on a day-to-day basis for the decisions it makes.”
CAPP said it expects the Western Canada gas business to remain in a state of flux for an extended period until customers adjust to sweeping changes, gas displaces coal at power-generation plants and exports of LNG make their debut.
Mainline costs to Nova Edwards said in the CAPP statement that TransCanada’s idea of allocating Mainline costs to Nova “turns business on its head.”
“When we contract with (Nova) we understand we are at risk for (Nova) costs and for what we contract for. As part of such contract we do not assume responsibility for Mainline costs,” he said.
Edwards said the notion of shifting burdens from one system to another is “offensive” because it would force producers to assume costs and risks they never accepted.
Eresman said an increase in tolls on Nova to backstop the Mainline would be unprecedented and introduce regulatory uncertainty, depress natural gas activity and drive away investment.
Real Cusson, senior vice president of marketing at Canadian Natural Resources, said it is “absolutely essential that TransCanada understands that (the Mainline) is their asset and their investment to manage for success. It is not for the National Energy Board to provide daddy’s money to bail out the kids every weekend.”
He said that if TransCanada employees were required to be more responsive to market forces they would overcome the company’s problems, but he scorned TransCanada’s current modeling that predicts a lift in Alberta gas prices as a case of “plugging in any number you want … to get the answer you want.”
The current round of hearings is expected to end about mid-October, with an NEB verdict scheduled for 2013.
TransCanada is currently exploring the conversion of part of the Mainline to carry rising crude production from the Alberta oil sands and the Bakken formation in North Dakota and Saskatchewan to deliver 300,000-800,000 barrels per day to refineries in Eastern Canada.
But discussions with potential crude shippers are taking place outside the NEB hearings and TransCanada has yet to say when it might make an announcement.
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