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Canadian Natural Gas E&Ps Lining Up for TransCanada’s Lower Mainline Toll

“Need” and “urgency” inspired a 23-name Who’s Who in Canadian natural gas to line up for a pipeline toll cut forecast to enable western supplies to compete with imports from the eastern United States, the National Energy Board (NEB) said Wednesday.

An application by TransCanada Corp. calls for swift NEB approval of the bargain, a 46% discount to C77 cents/gigajoule (GJ) or 61 cents/MMBtu for deliveries on its Mainline to the Dawn storage and trading hub in southern Ontario.

Production from Alberta and British Columbia (BC) will be confronted with heightened U.S. competition this fall via two new northbound conduits from the Marcellus-Utica shale gas fields, the application said.

TransCanada said U.S. pipeline capacity into Dawn is scheduled to jump Nov. 1 by 2.5 Bcf/d, with completion of the 1.5 Bcf/d Nexus and 1 Bcf/d Rover projects by Energy Transfer Partners LP, DTE Energy and Spectra Energy Partners.

The NEB adopted an expedited approval process that projects completion in August of all regulatory formalities for TransCanada’s toll application. Little opposition has surfaced to date, making a speedy ruling possible before the next heating season.

TransCanada’s application noted that already, “Dawn is a large liquid gas trading hub, with access to approximately 300 PJ (285 Bcf) of storage capacity.” Exits from Dawn currently have capacity to send 7.5 PJ/d (7 Bcf/d) across Ontario, Quebec and export border crossings into the northeastern United States.

Apart from the Nexus and Rover additions, “Dawn is also supplied by numerous pipelines that transport gas from multiple supply sources through Michigan into the hub, including: TransCanada via Great Lakes Gas Transmission, Vector, Panhandle, MichCon, and other smaller pipelines.”

The toll bargain for Alberta and BC gas responds to a years-long trading pattern trend of eastern buyers switching supply and price transactions to Dawn from TransCanada’s western supply collection grid, Nova Gas Transmission Ltd., said the application.

The spring sale of 1.5 PJ/d (1.4 Bcf/d) in 10-year firm Mainline transportation contracts for the proposed discounted toll reflects Canadian acceptance of competitive realities that ended old eastern reliance on remote western supplies, the application indicated.

U.S. gas exports to Canada topped 3 Bcf/d during the 2016-2017 heating season, show trade records collected by the NEB and the U.S. Energy Information Administration. The Canadian imports exceeded one-third of the nation’s total annual average consumption of 8.3 Bcf/d and topped the 2.4 Bcf/d current gas purchases by the largest and fastest-growing industrial user, Alberta thermal oilsands plants.

Customers for TransCanada’s discounted toll delivery bargain include Advantage Oil & Gas Ltd., ARC Resources Ltd., Birchcliff Energy Ltd., Bonavista Energy Corp., Canadian International Oil Operating Corp., Canadian Natural Resources Ltd., Cequence Energy Ltd., Crew Energy Inc., Encana Corp., Ember Resources Inc., Kelt Exploration Ltd., Murphy Canada Ltd., NuVista Energy Ltd. Painted Pony Petroleum Ltd., Paramount Resources Ltd., Pine Cliff Energy Ltd., Progress Energy Canada Ltd., Seven Generations Energy Ltd., Shell Canada Energy, TAQA North, Tourmaline Oil Corp., Trilogy Energy and UGR Blair Creek Ltd.

All of the customers are active in supply development across liquid byproducts-rich BC and Alberta shale formations such as the Montney, Duvernay and Deep Basin, using northern adaptations of horizontal drilling and hydraulic fracturing.

The new discount-tolled service from Alberta and BC to Dawn is expected to generate annual revenue of C$421.5 million ($400 million), but the 10-year net to the Mainline after expenses would only be C$2 billion ($1.5 billion), TransCanada estimated.

Forecast expenses include losses due to not renewing full-priced, C$1.42/GJ ($1.12/MMBtu) shipping contracts that included other destination options, and because of a new entry on the Canadian gas scene: carbon taxes expected to add up to C$248 million ($186 million), or maybe more, depending on evolving federal and provincial greenhouse gas emissions policies.

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