Would-be importers overcame a challenge by the Alberta government to win a landmark victory in opening eastern Canada to offshore cargoes of liquefied natural gas (LNG) with rolled-in tolls for connections to the new supplies. The National Energy Board cited the growing aggregate demand of all shippers combined with the expected decline of supplies from the Western Canada Sedimentary Basin as driving its decision.

Over Alberta protests alleging that unwarranted subsidies would be created for foreign gas, the National Energy Board (NEB) authorized TransCanada PipeLines to add a receipt point for a new LNG port on the Saint Lawrence River. Costs of hooking up the recently approved Cacouna LNG terminal will be rolled into the revenue requirement and tolls of TransCanada’s national mainline between Alberta and Quebec when the 500 MMcf/d import project is built, the NEB ruled.

Attaching the site to Trans Quebec & Maritimes Pipeline (TQM) will require a 240-kilometer extension plus a compressor for an estimated C$738 million (US$700 million). TransCanada predicted that by the time that cost is spread over all the gas moving in its national system, toll increases will work out to be fractions of a penny per MMBtu.

Although TQM is a separate corporate entity, its pipeline is operated as part of TransCanada’s integrated mainline. The ruling granted approval to add the new LNG terminal to the network in the same way as a new gas receipt point in western Canada would be added.

Alberta, saying it was defending western production, urged the NEB to consider TQM a stand-alone pipeline with separate revenue requirements and tolls for purposes of importing LNG. The government of the province that accounts for four-fifths of Canadian production, and collects annual gas royalties measured in billions of dollars, suggested any other policy would be unfair.

Alberta claims that LNG will displace western gas and that integrating imports into TransCanada mainline supplies will make western shippers subsidize competition, send wrong economic signals, impair competition and increase price volatility.

No participant in the case disputed forecasts by TransCanada and its supporters that aging western Canadian production will soon run down, the NEB observed.

The board said it is aware that the Cacouna ruling sends a signal to the LNG trade, but suggested that accommodating the project will broadcast the right message and not the wrong one. The method of covering costs for the pipeline hookup “will likely have an impact on the supplier’s perception of Canadian competitiveness in the global LNG market and its ability to yield attractive netbacks and subsequently secure supply,” the NEB said.

The integrated approach “would provide significant benefits to shippers,” the board said. “Those benefits are, among other things, an incremental source of supply, increased flexibility and reliability of the integrated system.”

While Petro-Canada sponsors the C$660 million Cacouna regasification terminal and has booked all the capacity on its link to TQM, the arrangement will only serve to start up the new addition to the market, and there is evidence that participation will grow as the traffic in imports evolves, the NEB said.

“By tolling the Cacouna extension on a rolled-in basis, the board recognizes that Petro-Canada would not bear the full marginal cost of these pipeline facilities,” the ruling said. “However, the board does not accept that this implies existing mainline shippers would subsidize Petro-Canada’s activities. In the board’s view, it is the growing aggregate demand of all shippers combined with the expected decline of supplies from the Western Canada Sedimentary Basin that give rise to the need for new supply requiring additional facilities such as the Cacouna extension.”

The NEB predicted “all mainline shippers,” starting with Quebec distributor Gaz Metropolitain, a supporter of TransCanada and Petro-Canada in the dispute with Alberta, would potentially use the extension and benefit from it.” As a result “it is appropriate for them to contribute to the recovery of the costs of this extension” to TQM.

Petro-Canada told the NEB that in addition to participating in LNG supply development in Trinidad & Tobago, it is working on lining up supplies from the Mediterranean, Middle East, Africa, Russia and Australia. Work continues on an LNG development collaboration with Russia’s Gazprom.

The Canadian producer described Cacouna as “an attractive alternative entry location for LNG suppliers away from traditional markets in Asia and Europe and into North America.” The Quebec terminal will also have a location advantage over LNG terminals in the Gulf of Mexico, Petro-Canada predicted in written evidence before the NEB in the Cacouna case.

“As an example, from the Mediterranean each round-trip to Cacouna is some 3,400 nautical miles shorter than to the Gulf of Mexico LNG terminals in Texas,” Petro-Canada said. “Overall, by coming to Gros Cacouna, an LNG supplier could save about C$800,000 (US$760,000 per trip). At the initial average day capacity of 500 MMcf (of the Cacouna terminal), this could result in an annual shipping saving of C$35 million (US$30 million).”

South of the border, Canadian LNG interests were gifted with another victory by the FERC. The Federal Energy Regulatory Commission denied Quoddy Bay LNG LLC’s request for a reciprocity condition that would bar the flow of natural gas through expanded U.S. pipeline facilities from the proposed Canaport LNG terminal in Canada until the Canadian government has withdrawn its threat to block U.S.-bound LNG tankers from traversing its waters (see Daily GPI, July 20).

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