TransCanada eyes LNG role

Canadian pipeline says it will compete for opportunities; needs alternatives while battling for Keystone XL, new gas production

Gary Park

For Petroleum News

TransCanada is too big to be counted out of the running to carry natural gas to LNG export points in the United States and Canada, says the pipeline company’s Chief Executive Officer Russ Girling.

To that end, the operator of North America’s largest gas line is holding discussions with “various market participants … to make sure they know what we can do for them,” he told an unconventional energy conference in Calgary.

“We are looking at those kinds of opportunities and we are not going to shy away from developing them,” Girling said. “We will compete as hard as anybody for those opportunities if the marketplace wants them to occur.”

He said that if Asian markets want access to North American gas he has no doubt the facilities will get built.

For now, Girling said TransCanada is looking for clear signals that long-term contracts to underpin LNG projects are likely to follow from recent large investment deals by Asian interests in U.S. and Canadian gas development, notably deals between Encana and Korea Gas, Progress Energy Resources and Malaysia’s Petronas, Penn West Petroleum and China Investment Corp. and China National Offshore Oil Corp. and Chesapeake Energy.

He said the Asian investors likely want access to technology they can use to develop their own shale gas resources along with the option to move North American gas to their home markets, especially in the wake of the Fukushima nuclear power plant disaster in Japan.

Winners not sure

“There’s a lot of conversation that goes on and a lot of projects that are being discussed. We are in the deal flow and we will figure out where we can add value,” he said.

More than just the need to ensure it has a stake in any major ventures, TransCanada needs insurance should its Keystone XL oil sands pipeline to the U.S. Gulf Coast come apart and to offset the challenges to its Mainline system, which the Globe and Mail portrayed in a headline this month as a “pipeline in peril.”

The Mainline covers 8,760 miles to the largest Canadian markets, once handling 6 billion cubic feet per day.

Over the past five years, TransCanada has seen contracted volumes decline 70 percent and shipments drop to 3.1 billion cubic feet per day, mostly reflecting the decline in conventional production in Western Canada and the rise of shale gas in the northeastern United States.

While TransCanada has acknowledged it is “acutely aware of the competitive situation of the Mainline,” Girling said the system has been in place for 60 years and will still be there 60 years from now.

Hopes tied to B.C.

Unhappiness among shippers that Mainline tolls have climbed to C$2.24 per gigajoule this year from C$1.30 in 2006 has led to speculation that some gas buyers in Ontario are recommending the National Energy Board order the shutdown of C$1 billion-C$2 billion of unused infrastructure, resulting in lower tolls — an option that TransCanada refuses to consider.

The company argues that the undepreciated value of the Mainline works out to about C$700,000 per mile compared with the C$4 million per mile it would cost to build a new pipeline (rising to C$10 million per mile in heavily populated areas).

Girling said that even of Mainline tolls were doubled that would be “way cheaper” than embarking on a new pipeline.

XL tug-of-war intensifies

Just as the Calgary-based company had a fleeting chance to enjoy support from an influential source it got sideswiped by the leak of crude oil from an ExxonMobil pipeline in Montana.

An article in the Wall Street Journal contained a ringing endorsement of XL, designed to ship 500,000 barrels per day of crude from the Alberta oil sands to refineries on the Texas Gulf Coast.

It described XL as a “shovel-ready, multibillion-dollar” project that would create 100,000 jobs in the United States, providing economic stimulus at a time when U.S. unemployment is 9.1 percent.

The newspaper argued that if President Barack Obama “were drawing up a plan from scratch to boost union employment and deflate Iranian-ally Hugo Chavez of Venezuela, it might look like Keystone XL.”

“U.S. greens loathe oil and the tar sands has become the next Alaska in green mythology. We get that. But what about jobs and growth?” he article said.

But Brian Jorde, an Omaha attorney counseling landowners to reject TransCanada’s easement agreements, said a drawn-out legal fight over access to private properties is inevitable, even if TransCanada culminates a three-year wait later this year with a presidential permit from Secretary of State Hillary Clinton.

TransCanada Chief Executive Officer Russ Girling said the Wall Street Journal article was evidence that “some other people” are starting to understand Keystone’s benefits.

However, opponents gained fresh ammunition from the Montana spill and a report by University of Nebraska water resources engineering Professor John Stansbury, who accused TransCanada of “flawed and inappropriate assumptions about the frequency and severity” of spills from the XL project, estimating the count at close to 100 over 50 years rather than the company’s calculation of 11 spills.

He estimated spills could run to 122,867 barrels in the Missouri River, 165,416 barrels in the Yellowstone, 140,950 barrels in the Platte and 198,000 barrels in the Sandhills region of Nebraska.

Friends of the Earth spokesman Alex Moore said the assurances from TransCanada about its emergency response plan “do not stand up to scrutiny,” arguing due diligence is required before construction starts.

Those arguments were bolstered when ExxonMobil’s Silvertip Pipeline released 750 to 1,000 barrels of crude into the Yellowstone on July 1.

However, U.S. State Department spokeswoman Wendy Nassmacher said Silvertip is buried only 5 to 8 feet below the river bottom, while TransCanada’s plans call for buying XL 30 feet beneath the river bed.

In addition, Montana Gov. Brian Schweitzer, an XL supporter, said the pipeline “is a completely differently designed system” and would have no physical contact with the water.

“Unless people are willing to park their cars and move into a cave and eat nuts, we’re going to continue to produce energy and that energy needs to be moved to the source of consumption,” he said.

—Gary Park