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Alberta, BC Natural Gas Trade Regaining Eastern Market Share on Pipeline Toll Discount

A deep cross-country pipeline toll discount is enabling Alberta and British Columbia (BC) production to recover its share of eastern markets from American unconventional gas, according to the latest trade record compiled by the U.S. Department of Energy (DOE).

Flows changed when TransCanada Corp. made a 46% rate cut on its natural gas Mainline to Ontario, Quebec and U.S. border crossings by implementing a 10-year bargain with Western Canada producers called the Dawn Long-term Fixed Price (LTFP).

The deal, named after the southwestern Ontario storage and trading hub where Western Canadian supplies meet and compete with U.S. exports, took effect last Nov. 1. Tolls dropped to C77 cents/gigajoule (65 cents/MMBtu) from C$1.42/GJ ($1.19) for 23 Alberta and BC producers that bought shipping contracts for 1.4 Bcf/d.

The gas trade pattern promptly changed, according to the 4Q2017 and full-year 2017 count by DOE’s Office of Regulation and International Engagement Division, which grants and monitors import and export permits.

“Volumes of exports to Canada in 2017 to start the year were significantly higher compared to export volumes in 2016, with December 2017 reversing the trend and being significantly lower than December 2016,” DOE said.

In October 2017, the last month before LTFP began, U.S. exports to Canada were up by 58% to 68 Bcf compared with 43 Bcf a year earlier.

In November 2017, the first month of the TransCanada toll cut, U.S. exports to Canada started slipping by dipping to 74 Bcf from 75 Bcf a year earlier.

As heating season arrived in earnest last December, U.S. exports to Canada dropped by 16% to 81 Bcf from 97 Bcf in December 2016.

In addition to taking advantage of the toll cut, Alberta and BC producers had help from newly completed capacity additions to TransCanada’s western supply collection grid, Nova Gas Transmission Ltd.

In a contested toll hearing currently underway before the National Energy Board, the Canadian Association of Petroleum Producers and its leading members are pressing for an expanded version of the LTFP bargain.

The producers are urging the NEB to make TransCanada cover costs of more toll cuts by tapping a rapidly growing financial assurance chest called the long-term adjustment account, which currently holds about C$1.1 billion ($880 million). The pipeline is defending the cash stash as a hedge against gas industry uncertainty.

For full-year 2017, DOE’s North American gas trade record showed Canadian exports to the Lower 48 grew by 2.2% to 3.076 Tcf or 8.4 Bcf/d, from 3.009 Tcf or 8.2 Bcf/d in 2016.

The Canadian exports also shared in a continent-wide price recovery by gaining 17% to average US$2.50/MMBtu at the border in 2017 from $2.14/MMBtu for depressed 2016.

American exports to Canada scored big gains before the TransCanada toll bargain helped reverse the trend during the last two months of 2017.

Total annual U.S. pipeline shipments north to Canada jumped by 19% to 917 Bcf in 2017 or 2.5 Bcf/d, compared with 771 Bcf or 2.1 Bcf/d in 2016.

The annual average price fetched by American exports to Canada also leaped up, gaining 20% to US$3.06/MMBtu in 2017 compared with $2.56/MMBtu in 2016.

Counting sales of 1.543 Tcf to Mexico and 706.5 Bcf in overseas shipments of liquefied natural gas (LNG), the United States stood out as the North American champion natural gas exporter in 2017.

The U.S. gas export total last year hit 3.168 Tcf, up 36% from 2.335 Tcf in 2016. American exports topped Canada, formerly the long-standing continental leader, but still missing out on the LNG action by 92 Bcf.

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