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Marcellus Gas Inches Closer to Ontario

After a pause to settle landowner disputes along the right-of-way, action is resuming on a pipeline project that will turn the tables on Canadian natural gas exporters by importing U.S. production into Ontario and Quebec.

A target date of Nov. 1, 2012, is set for reversing flows on the half-century-old Niagara Falls route between northern New York state and southern Ontario by a revised construction application to the National Energy Board (NEB).

Only C$130.4 million (U.S. dollar at par) in additional pipe, flow meters and compressor hardware is needed to make a start on the new trading pattern with northbound deliveries of 425 MMcf/d, said the filing by TransCanada Corp. Except for construction details, which changed to appease southern Ontario property owners whose protests prompted the NEB to suspend approval proceedings for about six weeks, the project and its costs have not changed.

The gas will be Marcellus Shale production from Pennsylvania, West Virginia and Ohio, the application said. Although the U.S. source is described as still only "emerging," it is rated as destined to be immense on the basis of performance to date. TransCanada estimates that the Marcellus supply basin contains economically recoverable reserves of 130 Tcf, or about three times the total left in Alberta conventional fields that have been the mainstays of Ontario and Quebec since the 1950s.

By 2020, TransCanada forecasts that Marcellus production will grow eightfold to 8.5 Bcf/d from an average of 1.1 Bcf/d in 2010.

"Such rapid change is unprecedented in the gas industry, where new sources of supply have tended to evolve and mature over decades," the NEB filing said. "Shale production in North America, in a short time period, has changed the dynamics of flow away from what were traditional pipeline transportation routes all over the continent."

The Niagara Falls flow reversal, officially titled the 2012 Eastern Mainline Expansion, will enable central Canada to use shale supplies that arrive in the region via the Tennessee Gas Pipeline and National Fuel Gas pipeline systems. Both are advancing projects, supported by transportation service contracts, which will enable northbound flows of Marcellus supplies, the NEB filing said.

Numerous other projects are on U.S. and Canadian pipeline drawing boards that pose a "competitive threat" to TransCanada, the NEB filing said. The warning is aimed at western Canadian producers that voiced alarm and signaled intentions to resist or slow the Niagara Falls reversal when the first version of the project application was filed in late summer (see Shale Daily, Oct. 10).

"Given the Marcellus supply growth and the pipeline development projects under way in the U.S. Northeast to deliver gas supplies, the import of this gas into Ontario is inevitable," the NEB filing said.

Rival pipeline bypasses around the Niagara Falls route would further cut traffic on TransCanada's Mainline and add to costs of excess capacity that have driven up its tolls over the past four years, the NEB filing said.

Apart from the most obvious result of heightening competition between U.S. and Canadian gas supplies, the Niagara Falls project is forecast to have a favorable effect on the TransCanada Mainline tolls. Pressure for increases will be reduced, and the new traffic will increase the TransCanada system's revenues enough to pare about one-tenth of one cent off its rates, the filing said.

From the perspective of U.S. suppliers, the Niagara Falls flow reversal spells a connection into the Dawn storage and trading hub in southern Ontario. As one of the continent's biggest and most active gas shopping centers, the location currently has holding capacity for 259 Bcf and does a brisk trade of 9.5 Bcf/d.

From Dawn, gas is sold across eastern Ontario, Quebec and into the U.S. Northeast via other routes across the Canada-U.S. border. TransCanada forecasts modest demand growth throughout the region over the next decade.

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