Nova Bypass Skirmish Soils Canadian Gas Accord
Peace lasted less than two months in the Canadian natural gas
community. Now comes the hard part of its April 8 agreement on
pipeline regulation and competition - thrashing out what it means
in a contest over a small project with big implications.
Nova Gas Transmission and Alberta Energy Co. are tangling before
the National Energy Board over how the agreement among Nova,
TransCanada, the Canadian Association of Petroleum Producers and
the Small Explorers and Producers Association of Canada affects a
new 70-mile pipeline proposed by Alberta Energy's AEC Suffield Gas
The AEC Suffield project aims to bypass the Nova system with a
link from the gas-rich Suffield Military Range in southeastern
Alberta to a connection with TransCanada PipeLines across the
Saskatchewan border. The boundary crossing puts jurisdiction in the
hands of the NEB and keeps the case away from the Alberta Energy
and Utilities Board, the protector of Nova's franchise.
Both sides in the feud insist they deserve to win under the
April accord. All sides pledged "to promote a competitive
environment and greater customer choice." Nova and Alberta Energy
are poles apart on what that means in practice.
In the jargon of the landmark Canadian agreement and the NEB
case, the quarrel centers on the word "incremental." The gas accord
recognized "the need to construct competitive incremental pipeline
capacity from the Western Canadian Sedimentary Basin by both new
competitors and existing pipelines in a timely, safe and
In traditional Canadian pipeline and regulatory language,
incremental is a loaded word that means additions to total gas
deliveries - the opposite is "displacement," or taking business
away from an established supply system. In the minds of Canadian
producers that have proposed or supported bypass routes,
incremental means added service options or transportation
In written submissions to the NEB, Nova says Alberta Energy's
project should be rejected because "evidence fails to demonstrate
that AEC Suffield has made any attempt to minimize the duplication
of existing pipeline infrastructure in a manner that is consistent
with the common objectives of the signatories to the accord." Nova
says "it is apparent.that the gas AEC Suffield proposes to
transport on its pipeline is gas that the NGTL system has been
designed, approved and constructed to transport." Nova says it
stands to lose shipping revenues of $16.9 million per year, causing
upward pressure on its tolls, because AEC's initial capacity for
175 MMcf/d would be filled with gas that would otherwise run on the
older pipeline. Also, "unnecessary facilities will result in
unnecessary environmental impacts."
Alberta Energy's hired-gun representative in the case - Mark
Drazen, a veteran specialist in pipeline competition from St.
Louis, MO - does not deny that AEC confronts Nova with rival,
duplicate facilities. Those are just what the market requires to
make old-line gas transporters adapt to the new era of competition
and cost-cutting, he tells the NEB. "Although NGTL facilities can
physically move the gas, NGTL provides a higher cost, less economic
service than AEC Suffield will provide. The issue is not what
facilities NGTL offers, but what service it offers to shippers.
'Service' is more than the physical handling of the gas. It also
includes the price and the responsiveness to customers' needs."
AEC Suffield, to be laid across easy prairie terrain for C$22.8
million (US$16.5 million), proposes tolls ranging from C14.7 cents
(US10.6 cents) per gigajoule for 20-year transportation contracts
to C17.5 cents (US12.7 cents) for five-year subscriptions. When the
project was invented last year, its tolls were as much as 40% less
than Nova's former postage-stamp charge. AEC says it still offers a
bargain compared to distance-based rates proposed by Nova this
spring. Parent Alberta Energy, chief producer in the Suffield
region, holds most of the capacity on proposed new line.
Drazen said AEC Suffield's customers would have to pay C$12
million (US$8.7 million) per year in Nova tolls if they stayed on
the old system - or, in just two years, more than the cost of
building the new route. He says Nova can get rid of the rivalry by
giving toll cuts to AEC Suffield's backers in the same way that it
put a stop to a 1996 bypass project titled Palliser by granting the
shippers discounts known as "load retention service." The absence
of such offers, and a prospect of increased tolls in some cases
under Nova's proposed distance-based system, are what has prompted
the Alberta Energy family to move ahead on the Suffield project.
AEC urges the NEB not to let itself be confused about the spirit
of the April gas pact by quibbles over the letter of its language.
Drazen says the board "is not being asked to define or interpret
the exact meaning of the accord. The real significance of the
accord lies in the recognition that the old rules of monopoly
service and limited choice no longer meet the needs of customers.
NGTL's narrow interpretation is inconsistent with the need for
Gordon Jaremko, Calgary