After holding back for 14 years, TransCanada PipeLines Ltd. isjumping into door-to-door retail sales competition – and on a scaleto match its stature as the nation’s biggest natural gastransporter and trader. TransCanada announced last week it isteaming up with department store retailer Sears Canada to make astart on a national campaign by initially selling gas toresidential consumers in Ottawa. The move by wholly-ownedsubsidiary TransCanada Energy out-classed on-going retailoperations such as Suncor Inc.’s Sunoco service station chain inOntario or pioneering efforts in central Canada by Direct EnergyMarketing of Calgary.

The new alliance represents a double first north of the border -the first entry into gas sales by a national general retailer aswell as TransCanada’s first entry into retailing. It was a big stepfor TransCanada, and a signal that a formerly controversial field,which used to be disdained as a hotbed of “discounters” orhustlers, has become respectable. The new arrangement calls forTransCanada to manage supply, transportation capacity, storage andrisk management for Sears. The department store chain will drum upconsumer contracts as an addition to its Sears HomeCentral line ofheating and cooling services which currently include sales offurnaces, air conditioning units, hot water tanks and maintenanceagreements. The companies said “the new agreement will first bepiloted in the Ottawa market with future plans to roll out theservice nationally.”

Larry Moore, Sears Canada vice president for service, said theagreement precludes either company partnering with another to sellgas to the residential market. Enbridge Consumers Gas is the OttawaLDC on which gas will be sold to residential users. If the pilot issuccessful in the initial months, the companies expect to roll itout to all of Ontario by the end of 2000, said TransCanadaspokesman Glenn Herchak. Eventually, in about five years, anational program could have about 550,000 customers out of aroughly 5.5 million potential users nationwide, giving it a 10%market share, Moore said. Total volume moved in a national programis expected to be about 200 MMcf/d. With electric deregulation,Sears could become involved in selling power, too, Moore said.

The pipeline sales subsidiary’s role in the partnership followsa script laid out for the next stage in the evolution of Canadianmarketing at a well-attended conference held in the gas capital ofCalgary by Ziff Energy Group. It is a stage supported by higherprices which make once-negligible activities profitable.

Brant Sangster, marketing vice president of Petro-Canada, saidthe new times call for master jugglers of two moving targets – thecosts of transporting Canadian gas and the price it fetches withall North America for a stage.

With new pipelines being completed on top of expansions by oldones, Sangster said the Canadian gas community is fulfilling adream that he called “connectivity.” But this process, ofestablishing links to every significant energysales outlet on thecontinent, “changes the marketplace fundamentally and irrevocably.It raises the importance of price and transportation management. Itwill change how a company is perceived and measured by thefinancial community. It is worth the effort to a natural gasproducer.”

In the connected Canadian gas community, making the rightdecisions about sales destinations and the route traveled make farmore difference to the price fetched by production than theindustry’s traditional crafts.Petro-Canada calculates that forevery MMBtu of Canadian production, transportation decisions canspell gains or losses of C25 cents (US17 cents) while choices ofwhat markets to pursue and when make C50 cent differences. Bycontrast, the traditional Canadian focus on gas finding anddevelopment costs deals with modest effects. For each MMBtu,concentrating on resource land costs makes a difference in the C3cent range, development drilling C4 cents, producton facilities C5cents and exploration C5 cents (US3.3 cents). Cutting costs ofoperations can make a bigger difference, but as a C10 cent factorremains a far smaller variable than gas prices and transportation.

Managing risks of movements in exchange rates between the U.S.and Canadian dollars can make as much difference in the valuereceived for gas as operating, finding and development costscombined, Petro-Canada’s calculations show. But multibillion-dollarexpansions of the pipeline grid and the strain of mastering theresulting complications of a continental trading game are worth theeffort, Sangster suggested. Canadian benchmark gas prices havegained about C$1.06 (US71 cents) per MMBtu since 1996 at AlbertaEnergy Co.’s AECO trading and storage hub. At the Sumas exportpoint for British Columbia gas travelling via Westcoast Energy’sprovincial pipeline web, a gain of C97 cents (US65 cents) hasnearly matched the improvement in Alberta.

The dynamics described by Petro-Canada also go a long waytowards explaining TransCanada’s new action, as a symptom ofchanging times as much as a change of heart in the gasestablishment. The “connectivity” described by Petro-Canada hasturned the tables on Canadian markets, tightening up supplies tothe point where the industry now operates in a “high priceenvironment” that is raising home heating costs across the countryand creating opportunities to make retail market competition pay.

Gordon Jaremko, Calgary

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