Ontario cuts into U.S. gas supplies

United States consumers of Canadian natural gas have increasing reasons to feel uneasy about the security of that supply.

Amid predictions that a downturn in drilling next year and confusion over the future of gas producers among income trusts, a new demand on Western Canada gas is surfacing.

In the past three months, TransCanada has signed two long-term supply contracts to deliver gas to fire two new power plants in Ontario.

The facilities, costing C$730 million and C$670 million, are expected to start generating electricity in 2010 and a combined 1,233 megawatts.

They are vital elements of Ontario’s policy to phase out coal-fired power generation by 2014.

The government of Canada’s most populous province (with about 13 million residents) recently postponed that target from 2007 to 2014, although four plants should be closed by 2012, leaving about 3,000 megawatts of capacity to be replaced over the next two years.

Currently, coal accounts for 19 percent of power generation in the province.

Bill Gwozd, Ziff Energy Group’s vice president of gas services, said Ontario’s shift towards gas (along with nuclear power) is significant because it will reduce gas available for export through the TransCanada pipeline system to the U.S. Northeast.

The Ontario deals also underscore the evolution of TransCanada from a pipeline company to a comprehensive energy supplier.

Power generation alone accounted for 40 percent of its third-quarter revenues of C$1.85 billion.

In addition to the gas-fired plants it is a partner in Bruce Power that is currently involved in a C$4.25 billion refit of its nuclear power plants which will deliver another 1,500 megawatts of power starting in 2010.

—Gary Park