TransCanada Corp. set out Thursday to refill its natural gas Mainline -- and help recover Canadian sales lost to U.S. exporters -- with an offer to cut tolls by as much as 47%.
An open season provides for reductions to be granted to shippers that sign 10-year firm transportation service contracts, with the greatest savings given to the largest delivery volume commitments.
Discount deals available until Nov. 10, off the current Mainline benchmark of C$1.42/gigajoule (GJ) (US$1.15/MMBtu), range from C$0.75 (US$0.58) for 250,000 GJ (238 MMcf) per day or more to C$0.82 (US$0.63) for less than 75,000 GJ (71,000 MMBtu) per day.
The bargains will only be implemented if the sale nets at least 1.5 petajoules (1.4 Bcf) per day in new 10-year delivery bookings, according to the offer.
The Mainline could handle more than double the target minimum volume, show pipeline performance records kept by the National Energy Board (NEB). Deliveries on the 57-year-old route from Alberta to Ontario, Quebec and border crossings into the United States have lately run at less than half of capacity.
An NEB pipeline survey shows that the 2015 average throughput in the Mainline’s western leg was three Bcf/d or 43% of its 6.9 Bcf/d capacity. In the eastern leg, traffic last year averaged 2 Bcf/d or 38% of 5.2 Bcf/d capacity.
The offer follows prolonged discussions within the Calgary-based Canadian natural gas supply sector on how to recover Ontario, Quebec and U.S. markets from low-cost U.S. shale production.
A recent study by Sanford C. Bernstein & Co. LLC analysts predicted a supply glut pitting TransCanada against two new U.S. pipelines seeking to supply eastern Canada. Energy Transfer Partners LP's Rover newbuild, Spectra Energy Corp.-backed Nexus Gas Transmission, and TransCanada’s lowered tolls could supply 3.7 Bcf/d to a 3 Bcf/d market (see Shale Daily, Oct. 12).
U.S. exports to central Canada have risen from insignificant 10 years ago to sustained levels exceeding two Bcf/d. Canadian exports to the U.S. fell by nearly 30% to a 2015 average of 7.4 Bcf/d from the 2008 peak of 10.4 Bcf/d.
Provided shipping tolls are favorable enough to overcome disadvantages of distance from customers, Canadian shale supplies can compete with U.S. output, according to evidence before the NEB in a recent British Columbia pipeline case.
Supply costs are dropping as producers gain experience with horizontal drilling and hydraulic fracturing in a western Canadian counterpart to the eastern Marcellus formation. In the Montney geological region, underlying 130,000 square kilometers (52,000 square miles) of northeastern BC and northwestern Alberta, the NEB was told that costs currently stand at C$1.50-3.00 (US$1.15-2.28) per Mcf.
TransCanada’s toll discount offer enables shippers to reduce volume commitments if sales fail to live up to expectations, but the rates would be increased as a penalty for shrinking the service contracts.
TransCanada Vice President Stephen Clark said, "We have listened to our customers' needs and are pleased to present them with a competitive toll structure that provides the flexibility they need to compete with changing market dynamics.”
The pipeline promised to seek NEB approval promptly for the toll discounts if enough shippers respond to the offer. Clark said, "Our proposal provides competitive transportation tolls for Canadians, utilizes existing pipeline infrastructure and allows Western Canada Sedimentary Basin producers to retain and enhance their natural gas market share in eastern Canada and the northeast United States."