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BC Gas Uncorked By NEB Decision on North Montney Mainline Pipe

Rising British Columbia (BC) unconventional production will be redirected east and south across Canada and the United States under a pipeline approval granted Wednesday to TransCanada Corp. in the wake of a scrapped Pacific Coast liquefied natural gas (LNG) export terminal project.

The National Energy Board (NEB) authorized conversion of the previously approved but dormant  North Montney Mainline (NMML) into an addition to TransCanada’s BC and Alberta supply collection network, Nova Gas Transmission Ltd. (NGTL).

The decision revives a C$1.4 billion ($1.1 billion) project that stalled in mid-2017, when cancellation of Pacific Northwest LNG killed its original role as a feeder for overseas tanker exports.

The new 206 kilometer-long (124-mile) jumbo pipe, 42-inch diameter pipe would span the liquids-rich heart of the Montney formation west of the Alaska Highway in the Fort St. John region of northern BC.

NGTL estimates that the area holds 85 Tcf of recoverable gas and predicts production will grow five-fold into the range of 3.5 Bcf/d by the 2030s. The resource wealth is also driving BC gas processing and liquid byproducts delivery and export projects by other companies.

The NEB rejected opposition to the NMML by the Alberta government and gas producers that did not book any of its capacity. The critics said the project would worsen congestion of pipelines and markets for Western Canadian gas, further driving down already depressed prices for bottled up surpluses.

The NEB predicted that “as integrated North American markets continue to evolve, gas demand will continue to seek out low cost sources of gas supply. This could result in expansions on the NGTL System to accommodate North Montney production growth, as well as increases to export capacity.”

While building NMML, TransCanada would also continue a multi-year series of other NGTL additions. The program currently adds up to C$7.2 billion ($5.7 billion) in construction and is growing as a result of successful capacity auctions.

The NMML schedule sought swift completion in 2019. Lengthy hearings on the project delayed the planned early 2018 start on construction. However, TransCanada on Thursday predicted the 2019 in-service target can still be hit if work begins before the end of the year.

TransCanada President Russ Girling described the NMML as a “critical piece of energy infrastructure to natural gas producers and downstream markets throughout Canada and the United States...These facilities are critical to the timely and economic development of the tremendous natural gas resource in the North Montney play."

More work still needs to be done to complete the service package, according to TransCanada. But the pipeline operator pledged to cooperate with shippers on satisfying tolling requirements included in the NMML approval conditions.

The decision complicated the project outlook by granting a partial victory to the project’s critics, as well as BC pipeline rival Westcoast Energy. The NEB ordered TransCanada to devise new, potentially more expensive tolls than the original low-cost financial blueprint for the NMML.

The board agreed with the critics that TransCanada plans to charge standard, low “rolled-in” or “postage-stamp” tolls for the NMML could cause “excessive cross-subsidization” by shippers that only use other parts of the NGTL grid. The TransCanada regime, born in Alberta, is also potentially unfair competition in BC against Westcoast, the board added.

“Unlike, for example, the addition of looping or a compressor station along existing pipeline right-of-way, which would be physically used by both new and existing system shippers, the North Montney Mainline is in a distinct right-of-way beyond the terminus of the existing NGTL system, and will only be physically utilized by an identifiable set of shippers,” the NEB said.

“The degree of integration for the North Montney Mainline is less than it would be for joint-use type facilities within a system’s existing footprint -- facilities physically used by both new and existing system shippers,” the board added.

The ruling allows use of rolled-in tolls for the first year of NMML operation. After that “provisional period” TransCanada is required to propose a new regime or raise rates by defaulting to a “stand-alone” or “stacked” charge covering 100% of the new line’s cost without spreading it across all traffic on the NGTL grid.

The NEB suggested that TransCanada may be able to devise a gentler alternative, for example by incorporating into NMML any extra costs of carrying the new Montney traffic on additions to the rest of the NGTL grid.

Before determining next steps for the project, the pipeline conglomerate is expected to hold discussions with customers that have signed 20-year contracts for NMML’s planned initial deliveries of 1.5 Bcf/d.

At the head of the line with secured capacity of 700 MMcf/d is Progress Energy, a subsidiary of Pacific Northwest LNG sponsor Petronas, which kept BC shale properties after discarding the tanker export terminal project.

Another 785 MMcf/d of NMML service has been sold to Kelt Exploration; Aitken Creek Gas; Painted Pony Petroleum Ltd; Arc Resources; Saguaro Resources; Black Swan Energy; Tourmaline Oil; Canbriam Energy; ConocoPhillips Canada, and UGR Blair Creek.

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