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Canada's NEB Approves TransCanada Plan for Imports of U.S. Gas

TransCanada Corp. has won approval to start an about-face in natural gas trade between Canada and the United States that Alberta producers have called an "historic" turning point.

The National Energy Board (NEB) authorized a C$130 million (U.S. dollar at par) package of Ontario additions to TransCanada's Mainline that will enable Marcellus Shale gas from the U.S. to flow north as early as this fall.

Known as the Eastern Mainline Expansion, the project will enable reversal of flows across the border in the Niagara Falls area, which has been an export route for western Canadian gas since the Alberta industry developed enough production to become a U.S. supplier.

In a protest letter fired off to the NEB after TransCanada disclosed the project last summer in the form of a routine application for minor bits of construction, the Canadian Association of Petroleum Producers (CAPP) rated the scheme as no ordinary development (see Daily GPI, Oct. 10, 2011; July 25, 2011).

"U.S. gas supplies have...rebounded," CAPP said in describing the change in trading patterns foreshadowed by the project. The Eastern Mainline Expansion is driven by American shale gas development. "Large supplies of gas in the Marcellus formation are now available close to Mainline traditional eastern markets," the Calgary-based trade association said.

"These new supplies of gas are displacing traditional sources of supply. History is being rewritten in the marketplace. For the first time in 55 years, this application would see natural gas flow from Niagara to Toronto. TransCanada treats this historic change as routine," CAPP said. The Alberta Department of Energy later added its voice to producers' questioning of the project.

Although TransCanada eventually filed some additional evidence beyond an initial application that just filled in blanks on a standard form for minor facilities changes, the NEB agreed to the project without calling hearings to explore its economic implications.

The approval decision made no reference to gas trading issues except to note that the facilities are necessary for planned traffic changes. The ruling focused almost entirely on environmental objections to construction by a handful of landowners along the route across southwestern Ontario.

To the extent that the wider trading issues raised by CAPP are aired, the forum will be forthcoming hearings on a larger application by TransCanada for permission to carry out a business, financial and toll restructuring. Critics of the overhaul see the Eastern Mainline Expansion as a contributor to falling traffic, excess delivery capacity and rising rates on TransCanada's long-distance conduit from Alberta to Ontario and Quebec.

Supporters that stepped forward for the new import capacity included distributor Union Gas Ltd., merchant Statoil Natural Gas LLC and the Ontario Ministry of Energy.

Union, which owns and operates the growing Dawn international gas trading hub in southern Ontario, is partnered with Toronto distributor Enbridge Gas Distribution Inc. on plans for further pipeline modifications to enable Canadian imports of U.S. production.

TransCanada's project will have capacity for up to 446 MMcf/d of U.S. gas exports. Union and Enbridge are holding an open season auction of space for up to 800 MMcf/d on a package called the Parkway Extension Project.

The Ontario Energy Ministry has told the NEB that additions to eastern pipeline facilities "are needed and are a natural evolution of the existing transmission system." The TransCanada project "will increase the liquidity of natural gas markets within Ontario such as Dawn, as well as provide the province with an increase in both security and diversity of supply."

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