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TransCanada seeks conversion NEB freezes tolls on Mainline network until ’17; dwindling West Canada gas has line operating at as little as one-third of capacity Gary Park For Petroleum News
Canada’s National Energy Board has delivered sweeping changes to tolls and tariffs on TransCanada’s giant natural gas Mainline, leaving the company to ponder a “long and complex decision” and move ahead boldly with its entry into crude oil transportation.
The federal regulator froze tolls on the ailing gas network until 2017 by rejecting TransCanada’s proposals “to improve competitiveness and recover costs.”
It set a toll for gas moving from Alberta to southern Ontario at C$1.42 per gigajoule, compared with the C$2.58 that would have resulted if TransCanada’s existing tolling formula had been left in place.
As part of its ruling, the NEB said gas tolls “cannot continue to ride each year in response to throughput decline.”
Bill Gwozd, senior vice president of gas services for Ziff Energy Group, said the lower toll should make it more attractive for Western Canadian gas producers to ship gas on the Mainline.
The NEB also rejected TransCanada’s application to transfer some of the costs for running the underused cross-Canada gas line to its better-utilized network in Alberta — a proposal the board called “inappropriate cost shifting” — saving producers up to C$500 million a year in tolls.
Operating below capacity In recent years, the mainline has operated as low as one-third of its capacity to move more than 5.5 billion cubic feet per day, as Western Canadian gas supplies have dwindled, dragged down by weak commodity prices, and have been challenged by shale gas from the northeastern United States.
The NEB acknowledged that no major board-regulated gas transmission pipeline system has ever been affected by market forces to the extent that the Mainline is now affected.
TransCanada said it submitted a comprehensive proposal to restructure its services and tolling on the Mainline in response to the significant changes that have occurred in the North American gas market over the last five years that have fundamentally altered the usage patterns on the mainline.
The NEB, while contending that the ruling will provide stability for gas shippers, said TransCanada’s profitability will be helped by a higher return on equity and other mechanisms.
Competition in crude If anything, the anticipated rejection of TransCanada’s major proposals will accelerate the company’s attempts to compete with Enbridge and Kinder Morgan for a larger chunk of crude oil business.
Along with pinning its hopes on U.S. approval for its Keystone XL project, TransCanada has told gas shippers to expect reduced space on the six delivery systems that form the Mainline as it tests shipper commitments to use one of those lines to carry up to 1 million barrels per day of Western Canadian oil sands crude and Bakken crude to Quebec refineries and possibly the East Coast.
The Mainline ruling gives TransCanada “the ability to deal with its challenges,” said Nick Schultz, vice president for pipeline regulation at the Canadian Association of Petroleum Producers.
“This is a prudent and principled decision and everybody wins when the regulator stands on principle and its prudent,” he said.
The 250-page ruling came after lengthy hearings that started last summer and were seen as a showdown between TransCanada and its shippers.
Murray Edwards, vice chairman of Canadian Natural Resources, told the board that siding with TransCanada would hurt producers struggling with low gas prices and would mean “less jobs created in Western Canada and less gas supply in Western Canada.”
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