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Northeast Natural Gas to Pressure Canada Supply

Imports of Canadian natural gas from Dawn, ON, could be displaced by U.S. gas moving out of northeastern Pennsylvania on expansions of both Tennessee Gas Pipeline (TGP) and National Fuel Gas Co. that are due to enter service in November, Bentek Energy LLC said in a note.

"Tennessee and National Fuel both have expansions coming online in November 2012 that can move production from the constrained northeast Pennsylvania market to the Canadian border. This could set up competition with Dawn supply for the Iroquois Zone 2 market, which has been importing the most Canadian gas during the past two winters, out of the New England markets," Bentek said in its Weekly Northeast Observer note. "Given the substantial discount of TGP Z4 prices to Dawn, the projects will likely displace 0.4 Bcf/d of Iroquois imports this winter."

TGP's Northeast Supply Diversification project would create capacity for up to 150 MMcf/d to flow from the pipeline's 300 Line to Niagara. The capacity is held by Anadarko Petroleum Corp., Mitsui & Co. Ltd. and Seneca Resources Corp., Bentek said.

"The TGP 300 Line has experienced severe constraints this summer and production receipts have remained at about 2.3 Bcf/d, with the line flowing full and no interruptible capacity available. The lack of capacity has forced producers in northeast Pennsylvania to bid down the TGP Z4 cash price substantially, and TGP Z4 has maintained an average discount of 74 cents to Dawn prices this summer," Bentek said. "This discount should incentivize producers to fill the TGP Northeast Supply Diversification expansion and move across the TransCanada Mainline to Iroquois, at the expense of Dawn imports."

The Northern Access project of National Fuel follows a similar path and would allow 320 MMcf/d of Marcellus gas to access markets at the Canadian border, Bentek said. Statoil holds all of the capacity. "The expansion could fill with production volumes near Ellisburg, which is well-connected with the TGP and Dominion systems, both of which have experienced substantial year-on-year growth in production volumes this summer," Bentek said.

TGP and National Fuel aren't the only ones eyeing moving northeastern U.S. gas into Canada. For instance, small pipeline projects intended to achieve big increases in Canadian imports of U.S. shale gas were launched in March by Union Gas Ltd. and Enbridge Gas Distribution Inc. (see NGI, March 19). And in May Canada's National Energy Board authorized a C$130 million (U.S. dollar at par) package of Ontario additions to TransCanada's Mainline to enable Marcellus Shale gas from the U.S. to flow north as early as this fall (see NGI, May 28).

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