With Canada’s newest natural gas export pipelines running at or near capacity, attention is riveted on how to cope with excess space on the old mainstay. As of June, the latest fully-reported month, Alliance Pipeline and Maritimes & Northeast Pipeline (M&NP) were meeting or exceeding expectations.

TransCanada PipeLines shouldered the lion’s share of a continuing gap between the expanded capacity of the international grid and the ability of producers to fill it.

Records kept by the National Energy Board (NEB) show Alliance carried 1.37 Bcf/d through June — 3.4% more than the nameplate capacity for 1.325 Bcf/d on the route to Chicago from northern British Columbia and Alberta. Despite the late spring and early-summer lull in gas demand, traffic on M&NP stayed at about 85-90% of capacity at 400 MMcf/d. The expanded international grid can carry 12.1 Bcf/d of Canadian production to the United States, by the latest count from the natural gas division in Natural Resources Canada. Total deliveries in June, while up by 2% from the same month of 2000, were 2.5 Bcf or 20% shy of completely filling all the export capacity.

The performance fulfilled glum expectations by a range of forecasters, from TransCanada’s own analysts to independent agencies such as the Canadian Energy Research Institute. When Alliance was approved over objections by TransCanada and affiliates, the consensus projection was that there would be a capacity excess in the range of 1.5-2.5 Bcf/d for up to five years, with the amount only shrinking gradually as producers stepped up drilling to the extent made possible by prices and geological targets.

How to cope with the excess has become the subject of lengthy hearings before the NEB this fall on applications by TransCanada for compensation. The traditional mainstay of Canadian gas deliveries is seeking changes to its financial structure that would generate tolls of C$1.25/gj (US$87 cents/MMBtu) this year and C$1.285 (US90 cents) in 2002 — or a 28% increase on the mid-2000 rate of C$1.009 (US71 cents) as of 2002.

In new evidence before the NEB, TransCanada said it has not given up on returning to 1990s Canadian practice of resolving toll issues with settlements rather than regulatory conflicts. Even in the midst of the contest over the new rate hikes, TransCanada predicted “there is an increased likelihood of negotiating success.” There is “greater awareness of the problems.”

In TransCanada’s interpretation, the problems include 1990s failures by gas shippers and the NEB to understand the implications of allowing competition to enter the formerly staid Canadian gas pipeline sector and supporting new entrants.

Rejecting critical shippers’ claims that pipelines that lose traffic under the new conditions should eat half the costs of over-capacity, TransCanada maintains it tried to prevent excesses from developing by opposing projects. TransCanada also points to a long history of attempts to introduce service and toll arrangements on its system that it believed to be competitive enough to forestall the capacity excess from developing, if they had been accepted.

TransCanada also maintains that the compensating toll increases being sought now are smaller than they look because the figures for cash charges mask changes in a Canadian method of payment in kind. Reduced traffic has in one way been a blessing in disguise. The amount of compressor fuel extracted from shippers’ gas to move it has been reduced by nearly one-third. Cash toll increases are being “substantially offset by the fuel savings that result from the system no longer having to run at extremely high load factors.” TransCanada calculated that at a gas price of C$4 per gigajoule (US$2.80 per MMBtu), or roughly the average expected this year for Canadian production if markets keep retreating, shippers are saving C9.1 cents/gj (US6.3 cents/MMBtu) as a result of reduced need for compressor fuel on the less crowded pipeline.

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