This isn’t your old natural gas supply chain. That was the message inherent in the plans by a main Northeast U.S. buying consortium to switch its point of purchase from Alberta to the Dawn, ON, hub when its 15-year contracts run out this fall. And, by the way, there won’t be any more 15-year contracts either.

The National Energy Board last week approved an application by TransCanada PipeLines Ltd. for C$99.3 million (US$84 million) in new Ontario facilities to accommodate the switch.

No industry interests stepped forward to resist the change, which was described by TransCanada and northeastern U.S. importers as a natural result of market evolution. The adaptation primarily serves Alberta Northeast Gas Ltd., a coalition of 17 northeastern U.S. distribution companies. The new facilities will enable ANE to obtain supplies at the Dawn trading hub in southern Ontario near Sarnia, ending 20 years of reliance on long contracts made in Alberta topped up at the inlet to the Iroquois branch line off TransCanada into the northeastern U.S.

Dawn has emerged as a highly “liquid” or active, rapidly growing hub for an array of gas supplies. Since 2003, daily average spot transactions have increased by nearly 60% to more than 12 Bcf. The Ontario location, a storage and trading center on part of the Union Gas distribution grid that has long doubled as a leg in TransCanada’s long-distance pipeline, has links with multiple U.S. and Canadian systems including ANR, MichCon, Great Lakes, CMS, Trunkline, Panhandle, Alliance and Northern Border.

The network also has a direct connection to the Chicago trading hub, Vector Pipeline. The buyers group requested expanded service at Dawn in anticipation of expiry this fall of its current supply portfolio of 15-year Alberta contracts for about 360 MMcf/d. ANE said it wanted to increase its Canadian gas supply to about 450 MMcf/d, but that it doubted even its old, smaller volumes could be sustained without changing procurement patterns.

“The gas supply market and contracting practices have changed drastically since the beginning of the ANE project,” the U.S. distributor consortium said in documents relayed to the NEB by TransCanada. Born as Boundary Gas in 1980, ANE started taking deliveries in 1984, and calculated it has bought more than 2.2 Tcf of Alberta supplies for about US$7 billion. In 1992 the arrangement triggered construction of the C$696 million Iroquois system and a C$2.6 billion expansion by TransCanada to fill the new export branch line to New England, New York and New Jersey.

The ANE-TransCanada-Iroquois project went into the record books as the first big new development stimulated by gas deregulation on both sides of the international border.

In supporting the supply procurement switch to Dawn, ANE predicted it was “very unlikely” it could line up a competitively priced, 15-year Alberta gas supply arrangement to replace its old contracts. The international gas market has completely turned around since Alberta producers lined up to make long commitments to ANE, the NEB was told. Big buyers no longer command volume discounts. Instead, suppliers command volume premiums.

“Prices for longer-term contracts are usually inflated and uncompetitive because the supplier includes a large price premium,” said ANE evidence in the TransCanada case for expanding Dawn hub service. Relying on the”illiquid” or small trading point at the inlet to Iroquois was shown to be too risky in a 2003 winter cold snap, when spot prices there spiked to US$76/dth while staying below $6 at Dawn and the Henry Hub, ANE said.

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