TransCanada PipeLines CFO Russell K. Girling said his company will be dealing with declining Western Canadian gas production over the next few years, but he believes that within several years Canadian supply will stabilize and remain flat over a significant period.
“Our view is that Western Canadian gas reserves will last for a long time,” Girling told analysts at UBS’s 2004 Natural Gas & Electric Utilities Conference. “What we have to find is where the sustainable level is. We might be slightly above the sustainable level now in Alberta. Out four to seven years, we’ll start to see it leveling off and [stabilize] for a long time after that. There’s lots of gas in the ground.”
Nevertheless, there won’t be nearly enough to meet rapidly growing gas demand, and that’s where imported liquefied natural gas (LNG), and to a much lesser extent, the Alaska and Mackenzie Valley pipelines come into the picture. TransCanada intends to be a part of all three.
TransCanada predicts that demand in North America could grow by 15 Bcf/d to 85 Bcf/d by 2015, but over that same period, North American gas supply probably will only grow by a net 1 Bcf/d with 4-5 Bcf/d of growth from Western Canada, Atlantic Canada and the Rocky Mountain region being offset by declines in the Gulf Coast and other places
“I don’t think there is anybody that doubts that there will be growth in demand… There will be a 20% increase or about 15 Bcf/d, and 60% of that is in markets that we serve currently… And 50% of that growth is for gas-fired power generation,” he said.
TransCanada is well positioned to play an important role in any incremental supply plans, but particularly in both the Alaska and Mackenzie Valley pipeline projects, said Girling. Both will be needed but probably won’t make much of a difference given the level of demand growth. A 2-4 Bcf/d pipeline from Alaska is “about equivalent to one year of declines in the Western Sedimentary Basin,” he noted. “It’s not a huge impact on the North American marketplace.”
Some new proponent of the Alaska project, notably MidAmerican Energy Holdings (see Daily GPI, Jan. 26), also might want TransCanada out of the picture, but Girling said the company could save stakeholders as much as $10 billion. He said Alaska pipeline estimates have run as high as US$20 billion, but TransCanada could cut that in half. “We’ll figure out how much spare capacity we have as we approach the on stream date, and if need be we can build incremental capacity out of Alberta or accommodate it into the system.
“We hold the certificates [for the Alaska Natural Gas Transmission System], but our focus is on being a catalyst to try and get that project to come to fruition so we are willing to work with whatever parties come forward that can put together a commercial arrangement that makes sense,” he said. “We believe the next step is a commercial underpinning for this thing, which is going to take all of those parties getting together, including the Alaskan government, Congress, the producers and the pipeline interests. It’s not going to get built until somebody says that they are willing to pay for a shipping agreement.
Girling also noted that TransCanada supports building a separate pipeline from the Mackenzie Delta, through the Northwest Territories and into TransCanada’s Alberta system. The Mackenzie project is much smaller than the Alaska pipeline, is on a different timeline and has different stakeholders and different political requirements, he noted. TransCanada holds a 5% interest in the project, is funding the aboriginal group’s share of the project, an option to buy up to 50% of the pipeline interest of the producer stakeholders when they sell, and has a one-third stake in any expansion that may take place.
“What we bring to both projects [Alaska and Mackenzie] is essentially flexibility,” said Girling. “We have spare capacity in our pipeline system today that can be utilized. We have about 1.5 Bcf/d of spare capacity in the Alberta system to accommodate almost 100% of the Mackenzie Valley supply with very little incremental dollars. The cost of building a new cross-Alberta line would be similar to building from the Mackenzie Valley down [to Alberta]. We offer that capacity up to the producers. More gas in the system also brings down tolls for existing shippers and we can offer up part of that benefit to the new gas coming in. At the same time it provides access to a very liquid hub.
“As we bring on Northern gas we can optimize the build out of the province,” he added. However, oil sands projects in northeastern Alberta probably will soak up all of the supply from the 800 MMcf/d to 1.2 Bcf/d Mackenzie River Valley pipeline.
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