Petro-Canada Plans Bypass to Skirt Tolls

Petro-Canada has become the latest natural gas producer to resort to a pipeline bypass to cut costs of transportation on the TransCanada-Nova system by ducking around its former monopoly franchise in Alberta.

Petro-Canada filed with the National Energy Board for a 40-mile, 53 MMcf/d link between prolific gas fields in the Medicine Hat area of southeastern Alberta to the TransCanada long-distance mainline in southwestern Saskatchewan. The plan calls for the connection, titled Medicine Hat Pipeline, to be built and in operation by May 1, 2002, for a cost of C$9.9 million (US$6.6 million), with Petro-Canada using 55% of the capacity while the rest is booked by four other producers.

Petro-Canada made no disclosures of tolls and said they will be negotiated on a commercial basis, without resorting to cost-of-service methods and regulatory policing. The last producer that adopted the bypass technique in the same region -- Alberta Energy Co., with a 190 MMcf/d line -- estimated transportation cost savings were at least 50%.

The tactic emerged among producers in the mid-1990s as tolls rose on the Nova Alberta grid to pay for expansions in the northern part of the province, while the NEB adopted a policy of encouraging a competitive market for pipeline services. The producer bypass emerged as a standard approach in regions near provincial boundaries. A border crossing automatically gives jurisdiction over a project to the NEB as opposed to the Alberta Energy and Utilities Board, which traditionally defended the Nova franchise for decades before TransCanada acquired it in a 1999 merger.

Bypasses -- including the biggest one of them all, Alliance Pipeline from northern British Columbia to Chicago ­- are key factors driving a contested TransCanada application for rate-of-return and toll increases now before the NEB.

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