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TransCanada: Canada to Enter Global Energy Market in Six Years

Canadian energy merchants will break out of North America and into overseas markets within six years, predicts the nation's biggest pipeline empire. Exports of liquefied natural gas (LNG) will begin from new tanker terminals on the Pacific Coast of British Columbia (BC) at Kitimat in late 2017, TransCanada Corp. has told the National Energy Board (NEB).

Canada's entry into global energy trade is projected to start small, at an average of 200 MMcf/d. But TransCanada expects rapid growth of LNG exports to 400 MMcf/d in 2018, 1 Bcf/d in 2019 and 1.3 Bcf/d in 2020.

The anticipated widening of industry horizons forms part of the reason why TransCanada expects shrunken traffic to become a lasting condition on its troubled natural gas Mainline to central Canada and export crossings into the United States. The trade expectations surfaced in a revised throughput forecast that TransCanada presented to support its case for approval of a hotly contested business and financial restructuring proposal now under review in marathon NEB hearings (see NGI, June 25).

After the hearings began, the pipeline giant stepped forward as potentially part of its Mainline's problem. In June, TransCanada announced an agreement to build a C$4 billion (U.S. dollar at par) pipeline to fill a mammoth 12 million ton/year export terminal planned for Kitimat by the LNG Canada consortium of Shell Canada Ltd., Korea Gas Corp., Mitsubishi Corp. and PetroChina Co. (see NGI, May 21). Named Coastal GasLink, TransCanada's entry into BC pipeline support for overseas exports is projected to be built big enough to start up with capacity for 1.7 Bcf/d then increase deliveries in step with planned additions to the LNG Canada terminal as its Asian markets grow.

The jumbo BC coast development remains in planning stages, with no details such as construction and expansion schedules disclosed yet. But the scheme is expected to dwarf two tanker terminal projects that currently have provincial environmental approvals and NEB gas export licenses, KM LNG and BC LNG Cooperative (see NGI, April 16; Feb. 13).

The two initial Canadian overseas export projects combined stop just short of building capacity for 2 Bcf/d, and only expect to reach full potential in stages. TransCanada's new forecast does not identify which Pacific Coast terminal it expects to be built first. LNG Canada has declared intentions to unveil a project description late this year, in order to complete the regulatory process and build its operation sometime "around the end of the decade."

Although the priority service target for LNG Canada and Coastal GasLink is BC shale gas, the program includes an offer to widen the overseas marketing network to include Alberta production. The plans include a connection to TransCanada's Nova grid in Alberta, via a hookup mid-way between the traditional mainstay producing province and the Pacific coast at the central BC town of Vanderhoof. Nova will hold an open-season auction of the proposed westbound capacity starting late this year, TransCanada said.

Traffic on the eastbound Mainline, meanwhile, is expected to languish at low levels for as long as TransCanada makes projections into the future of Canadian gas supplies and sales.

Since 2000 Mainline deliveries of Alberta, BC and Saskatchewan gas production fell by 53% from 6.8 Bcf/d, or nearly full capacity, to 3.2 Bcf/d in 2011. This year, the new throughput forecast predicts the traffic will decay by another 25% to a meager 2.4 Bcf/d. A recovery is expected to begin in 2013, with Mainline shipments perking up to 2.6 Bcf/d. But the revival is expected to remain slow and fail to regain the heights of 2000, with traffic at best rising into a range of 3.6-3.9 Bcf/d in the second half of this decade. At worst, if Alberta gas prices and drilling remain at their current severely depressed levels, TransCanada expects Mainline traffic to stagnate in a range of 2.8-3.2 Bcf/d.

In a reduced but still relatively optimistic base case for glutted gas markets, TransCanada says it can conceive of annual average Alberta processing plant gate prices recovering from C$2.52/gigajoule (GJ) ($2.65/MMBtu) this year to C$3/GJ ($3.15/MMBtu) in 2013 then gently rising to C$5.47/GJ ($5.74/MMBtu) in 2020, which would still be a far cry from the C$8-9/GJ ($8.40-9.45/MMBtu) at the peak of the North American market seven years ago.

In the restructuring case before the NEB, the lowered expectations for prices and Alberta production result in a reduction of toll savings projected for the Mainline if TransCanada is granted its full request for a regulated revenue requirement that covers all costs including excess capacity and a deemed fair return.

The new throughput forecast results in a benchmark toll for the Mainline from Alberta to the Dawn storage and trading hub in southern Ontario of C$1.47/GJ (US$1.54/MMBtu), up from the previous target of C$1.40/GJ ($1.47/MMBtu). But the restructured rate will still be C59 cents/GJ (62 cents/MMBtu) or 30% below the current interim toll, and 46% below the C$2.74/GJ ($2.88/MMBtu) that the freight would hit in 2013 if the old regime stayed in place for the Mainline, TransCanada predicts.

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