Northern Border Partners LP disclosed last week that 600 MMcf/d of the available firm transportation capacity on Northern Border Pipeline went unsold in April and that this could lead to a substantial reduction in the pipeline company's net income for the year.
The difficulty in selling transportation capacity was attributed to the small price spread between Monchy, SK, and Ventura, IA, as well as strong storage injections this year in Canada upstream of the pipeline system.
"We had indicated previously that this might occur at certain times during 2005," said CEO Bill Cordes. "We believe a primary factor in the unsold capacity was greater than average natural gas storage injections during April from Western Canadian supply sources, triggered by unusually high summer to winter price differentials. As these storage areas continue to fill, the opportunity for contracting for Northern Border Pipeline's capacity should improve. Consequently, we believe the greatest potential for continued revenue shortfall at Northern Border Pipeline exists in the second quarter of 2005."
Northern Border Pipeline had 800 MMcf/d or 28% of summer design capacity under contracts that expired or are due to expire by May 31. The company previously disclosed that a possible reduction of $7 million to $14 million ($5 million to $10 million, net to the partnership) in 2005 net income and cash flows could result on Northern Border Pipeline if sufficient demand did not exist for the capacity. Although the company is currently reevaluating this estimate, it said a greater reduction is now likely.
For the month of April, 600 MMcf/d was available for contracting and went unsold. The resulting impact to revenues for Northern Border Pipeline for the month of April is estimated to be a reduction of $6 million ($4.2 million, net to the partnership).
As a result of recent contracting activity, a total of 650 MMcf/d of capacity remains available for contracting beginning in May. While transportation values fluctuate daily, the future value to potential shippers of Northern Border's transportation between Port of Morgan and Ventura is currently less than the pipeline's 29.6-cent maximum rate.
Northern Border Partners plans to discuss its full-year expectations for Northern Border Pipeline and all of its other businesses during its upcoming earnings release investor conference call on May 4.
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