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Oilsands Production Pulling Harder on TransCanada NatGas System

Continuing growth in the use of natural gas as fuel for thermal oilsands production is showing on a barometer of industry development: TransCanada Corp.'s Alberta supply collection network, Nova Gas Transmission Ltd. (NGTL).

Despite fallen oil prices and analyst forecasts that revenue setbacks will be lethal for industry activity, customers have stepped forward for C$6.7 billion (US$5.4 billion) in additions to NGTL, TransCanada has told shareholders in its 2014 annual statements.

“We continue to experience significant growth on the NGTL system,” TransCanada said. Shipper requests show “substantive growth in intra-basin [Alberta] delivery markets, driven primarily by oilsands development and demand for gas-fired electric power generation.”

The lineup for increased deliveries is currently expected to generate new firm service contracts for 4 Bcf/d over the next two years, said TransCanada. About three-quarters of the orders arise from a spreading switch over to shale gas production in northeastern British Columbia as well as the traditional Canadian industry mainstay supply region of northwestern Alberta. Demand for new firm deliveries off NGTL currently stands at 900 MMcf/d.

Northern Alberta gas-fired power plants are associated with oilsands sites. The Canadian Association of Petroleum Producers predicts that projects now under construction alone will increase bitumen production by 150,000 b/d this year and again in 2016.

Canadian Natural Resources Ltd., Imperial Oil Ltd. and Suncor Energy have confirmed construction is continuing on three 100,000 b/d-plus bitumen mines. Smaller industry participants affirm that work is also going ahead on more modest underground extraction sites that grow in smaller stages, at a reduced pace governed by current oil prices.

Gas use by oilsands plants averages 1 MMBtu per barrel of production, in a wide range that runs up to 2 MMBtu per barrel in early operating stages at the newest or the least efficient operations.

TransCanada-NGTL has begun making construction applications to the National Energy Board (NEB) for a package of additions that is projected to grow to 540 kilometers (336 miles) of new gas pipelines, seven compressor stations and 40 flow meter sites for completion by 2016-2017 alone.

The NEB filings to date all involve additions to the top half of the NGTL grid, serving gas consumption in the 140,000-square kilometer (56,000-square-mile) northeastern Alberta bitumen belt and production in the western, Peace River region. TransCanada predicts the 2016-2017 service additions will cost C$2.7 billion (US$2.2 billion).

Uncertainty over international energy markets affects the two costliest additions on NGTL's planning horizon: BC extensions of the grid for westbound flows to liquefied natural gas (LNG) terminals proposed on the northern Pacific Coast.

The two big items, the North Montney Mainline and the Merrick Mainline, each have price tags approaching C$2 billion (US$1.6 billion) for long legs of large-diameter pipe for collecting high volumes of BC shale gas production to fill LNG tankers.

North Montney and Merrick are intended to fill separate mega-conduits proposed by TransCanada to cross about 800 kilometers (500 miles) of BC hills, mountains, inland muskeg swamps and coastal rain forests to LNG terminals at Kitimat and Prince Rupert. Both of the big lines across BC -- Coastal GasLink to Kitimat and Prince Rupert Gas Transmission to its namesake destination port near the province's border with the Alaska Panhandle -- are planned for gas traffic on the order of 4 Bcf/d. Forecast price tags exceed C$4 billion (US$3.2 billion) for each of the jumbo lines.

While the LNG pipeline supply proposals continue to go through regulatory reviews by BC and federal agencies, no firm construction dates are set. TransCanada said its construction pace would match demand by export terminal projects.

Activity slowed to a crawl in the Pacific Coast LNG terminal lineup since the most advanced project and main customer for NGTL's North Montney pipeline -- Pacific Northwest LNG, sponsored by Progress Energy, the Canadian arm of Malaysian state energy conglomerate Petronas -- deferred making a final investment decision in December.

TransCanada predicted that the prime customer for Coastal GasLink -- LNG Canada, a consortium led by Shell that includes Asian energy enterprises -- could make a final investment decision in early 2016.

Long before any steps forward by the LNG lineup, TransCanada is completing a liquids delivery piece of the oilsands action. Construction is under way in Alberta on the company's C$900 million (US$720 million) Northern Courier system, a pair of pipelines for carrying bitumen and diluents such as diesel and gasoline-like condensates for 90 kilometers (56 miles) between parts of Suncor's sprawling mining and upgrading complex north of Fort McMurray.

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