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Nova Bows to Alliance for Liquids-Rich Traffic

TransCanada Corp. has pulled back from opening a new front in regulatory duels with customers of its international family of pipelines. Nova Gas Transmission, the empire's Alberta arm, has withdrawn an application to the National Energy Board (NEB) for approval of a contested scheme called NEXT, short for natural gas liquids (NGL) extraction (see NGI, March 26).

The action leaves the field of attracting NGL traffic wide open to rival Alliance Pipeline, which is offering an array of new delivery services and tolls for liquids-rich gas (see related story). TransCanada-Nova's retreat follows five months of futile efforts to find common ground for a settlement among producers, extraction plants, NGL buyers and the Alberta and British Columbia governments.

NEXT was a tariff reform that Alberta's Energy Resources Conservation Board (ERCB) recommended four years ago, following a 20-month inquiry. The scheme became an application to the NEB after the Alberta government agreed to a TransCanada request for jurisdiction over Nova to be transferred to the federal board from the ERCB. The switch enabled Nova to expand by building extensions into British Columbia (BC) that the Alberta board had no authority to approve.

NEXT was devised to overhaul a legacy of lopsided market rules that prevailed in Alberta from the gas industry's birth in the 1940s and 1950s then lingered long after mid-1980s deregulation. Under industry conditions that prevailed in 2011, Nova predicted that NEXT would cut its tolls by up to C3 cents/Mcf and generate average price gains of C32 cents/Mcf for all traffic crossing its Alberta pipeline grid.

As of 2011, NEXT was projected to generate total annual gains to NGL producers of C$1 billion. The reform plan was supported by the Canadian Association of Petroleum Producers, the Small Explorers and Producers Association of Canada, and the Alberta government. But the change was resisted before the ERCB and the NEB by beneficiaries of the status quo, chiefly gas-processing plants and NGL consumers led by petrochemical and fertilizer complexes. The aborted application to implement NEXT drew 37 interveners into the approval case before the NEB, including numerous industry associations that each represent multiple companies.

Known as "the current convention," the status quo is a package of traditions entrenched in the Nova transportation tariff and a complex web of old contracting practices and provincial policies. The old regime, which was originally supported by Alberta government industrial diversification policy that encouraged 1970s and 1980s petrochemical development, effectively prevents recognition of NGL vapors as separate and more valuable items for the producer than the gas that contains them.

The system enables straddle plants along Nova's grid to pay only a shrinkage price for the volume of gas when they extract liquids from shipments as they travel to connections with long-distance pipelines. Savings are passed on to NGL users and were a key item in attracting petrochemical and fertilizer manufacturing projects to Alberta locations.

The NEXT proposal sought to scrap the current convention and implement a replacement that recognizes the value of NGL in Alberta gas at inlets to the Nova pipeline grid. The plan also called for creation of extraction rights (ER). A new trade in ER certificates was expected to develop on Canada's NGX digital natural gas exchange. Not counting marketers and supply aggregators, an industry survey identified 154 potential participants in the new trade including 140 Nova shippers and 14 extraction plants.

The NEB gave TransCanada-Nova permission to suspend their NEXT application in May after the case attracted its lineup of three dozen interveners. During the suspension, efforts to arrange a settlement turned out to be futile. In a letter withdrawing the application, TransCanada now tells the NEB that Nova "conducted consultations across a broad range of stakeholders to explore how the NEXT approach aligns with changing circumstances of the Western Canada Sedimentary Basin. (WCSB)"

As the value gap between gas and NGL widened, "These consultations were conducted on a one-on-one basis with interested parties representing the provincial governments of Alberta and British Columbia, WCSB producers, the intra-Alberta and export markets, associations that include Nova customers, the petrochemical industry and straddle plants," TransCanada said.

"The discussions focused on understanding concerns regarding NEXT, exploring modifications to the applied-for model and evolving opportunities to increase the quantity of natural gas liquids available for extraction on the [Nova] Alberta system. The consultations failed to produce any meaningful consensus," TransCanada said.

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