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TransCanada: Northern Gas Pipelines a Long-Term Necessity

TransCanada Corp.'s management team is looking to the North for long-term opportunities in North America, CEO Hal Kvisle told financial analysts last week.

"We're not lacking anything," he said, when asked where the company might stake a claim once it completes a $60 billion backlog of pipeline, storage and transmission projects. "But where we see significant opportunities to grow is in the northern buildout of our system to bring more gas to the Alberta Hub. That's more attractive in the long term.

"Everybody's excited about shale gas these days, and we're well positioned for that and we expect to continue to invest in that to bring more volumes to market."

However, the CEO said TransCanada "also is enthused" about the two northern gas pipeline proposals in which it holds stakes, the Alaska Pipeline Project and the Mackenzie Gas Project (MGP).

TransCanada and partner ExxonMobil Corp. in January filed an open season plan with the Federal Energy Regulatory Commission (FERC) for the proposed Alaska gasline, which would carry North Slope gas reserves to Canadian and, ultimately, Lower 48 markets (see NGI, Feb. 1). Canada's National Energy Board (NEB) has scheduled final oral arguments for April on the proposed MGP, in which TransCanada is a partner (see related story).

"Producers face a challenge to replace reserves of natural gas from the annual decline," said Kvisle. "It's a huge challenge, and we actually reinvent ourselves every five years" attempting to find ways to replenish supplies. "We see the industry continually moving around, trying to figure out ways to take on the declines, so Alaska and Mackenzie are big opportunities for us."

The CEO admitted that the two proposed gaslines won't be part of the supply picture for North America for several years.

"But for now, we'll spend cautiously and keep those two projects moving forward at reasonable costs," he said. "And we're happy with how that's going."

On the Mackenzie front, the National Energy Board (NEB) has called a special hearing for March 29 to look into opposition charges that the feasibility studies for the Mackenzie line are now seven years old and are not relevant today given the explosion in shale gas development. The hearing will occur shortly before the final argument stage in Canada's marathon Arctic pipeline hearings begin in April (see separate story, this issue).

"In the meantime TransCanada has other gas projects well into the development phase, including the Horn River and Groundbirch pipelines in British Columbia (BC), said Kvisle. The Groundbirch pipeline would transport gas reserves from the Montney formation in northeast BC, while the Horn River pipe would carry gas from a point north of Fort Nelson, BC, to TransCanada's Alberta System (see related story and NGI, June 15, 2009).

The public hearing process for Groundbirch concluded last November, and a decision by NEB could come any day, Kvisle said. If approved, construction could begin in July with completion later this year. For the Horn River project, contractual commitments "have increased from 378 MMcf/d to 503 MMcf/d by 2014."

In addition, Bison Pipeline LLC's proposal to carry gas from the Powder River Basin in Wyoming to Midwest markets is close to approval, said the CEO. FERC late last year issued a favorable final environmental review of the project (see NGI, Jan. 4). Pipeline construction is expected to begin in May with in-service by late this year.

TransCanada booked adjusted net income of C$328 million (C48 cents/share) in 4Q2009, versus C$271 million (C46 cents) a year earlier. Revenue year/year declined to C$2.21 billion from C$2.33 billion, while net cash flow increased to C$633 million from C$562 million. A weaker U.S. dollar also cut into pipeline earnings, which declined 7% to C$517 million. The segment's earnings also were hit by increased costs from the Alaska Pipeline Project.

In the Natural Gas Storage segment, profits jumped 44% from a year ago to C$49 million on higher seasonal demand and a wide spread between gas spot and futures prices, which led producers to store gas for future sales until prices recovered.

Power generation earnings dropped 25% to C$169 million from C$224 million. TransCanada blamed the profit loss on a decline in power demand because of the economic downturn, which was offset by higher earnings from natural gas power generation because of lower costs for the fuel, and from higher profits from nuclear power generating stations.

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