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Alberta, British Columbia NatGas Suppliers Set Sights on Eastern Canada and U.S.

Alberta and British Columbia natural gas suppliers have set out to regain sales in Ontario, Quebec and the eastern United States by sharpening their competitive edge with discounted pipeline rates that reduce delivered costs of western production.

On Monday, TransCanada Corp. reported success for its second try to refill its half-empty natural gas Mainline with a deepened, 46% toll cut to C$0.77/gigajoule (GJ) (US$0.61/MMBtu) for deliveries as far as the Dawn storage and trading hub in southern Ontario.

The bargain, offered in February after a less generous proposal failed last October, drew takers for the minimum 1.4 Bcf/d of 10-year firm shipping contracts that the pipeline set as essential to introduce the low-cost service.

TransCanada president Russ Girling said in a statement, "This new offering helps our customers compete more effectively by utilizing existing capacity on the Canadian Mainline, and demonstrates the importance and value of this system to deliver their products to markets in Eastern Canada and the Northeast U.S."

The deal follows prolonged discussions between TransCanada and Alberta and BC suppliers on the combined effects of U.S. shale gas abundance and the undiscounted Mainline toll of C$1.42/GJ (US$1.15/MMBtu). Girling acknowledged, "Today, Western Canada Sedimentary Basin producers are facing a much more challenging landscape than they have in the past."

Effects of low-cost American competition show in trade and pipeline traffic records kept by the National Energy Board (NEB).

Canadian gas imports from the U.S. hit 2.4 Bcf/d in November and shot up to 3.0 Bcf/d in December, continuing a pattern established as American output from the Marcellus and Utica shale formations grew.

The NEB records show that by 2015 average throughput in TransCanada Mainline's western leg was three Bcf/d or 43% of its 6.9 Bcf/d capacity. In the eastern leg the average shrank to two Bcf/d or 38% of 5.2 Bcf/d capacity.

American exports to central Canada have risen over the past 10 years to sustained strength at times exceeding 2 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.

TransCanada set a target of Nov. 1, 2017, for implementing the toll discount. An application for approval will be filed soon with the NEB, the pipeline said. Shippers that hold old, full-priced delivery contracts have yet to take a position on whether their rates should also be immediately cut to the discounted level for new shipping volumes.

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