A historic reversal of natural gas flows between Canada and the United States is inevitable, TransCanada Corp. says. The company is urging acceptance of its plan to make the switch with its own natural gas Mainline between Alberta and Ontario as the lesser of two evils.
The alternative is described as a bypass pipeline that would cut revenues and drive up tolls on the Mainline — and increase volumes of the coming northbound flows of U.S.-sourced gas into Canada. TransCanada delivered the message as a defense of the contested project, called Eastern Mainline Expansion, in an exchange of documents with the National Energy Board (NEB).
The plan calls for construction this year of C$130 million (U.S. dollar at par) in facilities in southern Ontario (see Daily GPI, Nov. 14, 2011). The additions would enable TransCanada to reverse flows on a 55-year-old mainstay of Canadian exports to the U.S., the international border crossing between New York state and Ontario at Niagara Falls. The proposed facilities, scheduled to be installed in time to go into service this fall, are supported by transportation service contracts for 446 MMcf/d, according to the pipeline.
Replies to questions about the project by the NEB say, “If TransCanada does not build the project, another build will likely occur and bypass the Mainline.” Regardless of the direction of flows at Niagara, keeping the transportation services on TransCanada is bound to benefit the whole Canadian gas family, the NEB was told. “Both the Mainline and its shippers will benefit by building the project, which will capture some of the eastern throughput, as opposed to none at all.”
Western Canadian gas producers will lose as little as 10-20 MMcf/d in sales as a result of the Eastern Mainline Expansion, TransCanada predicts. Traffic on the Alberta-Ontario gas conduit has already been sharply reduced due to depletion of aging western Canadian wells, rising consumption by thermal oilsands extraction plants, and competition from U.S. shale production.
If the sales losses and shrinkage in traffic from Alberta are as small as forecast, TransCanada calculates that the Mainline toll increase resulting from the Niagara Falls flow reversal will only be C$0.01-0.018 per gigajoule (US$0.017-0.019/MMBtu). Not all the losses in delivery volumes liable to result from the Eastern Mainline Expansion will be concentrated on the TransCanada system, the NEB is also assured. TransCanada predicts that rival Vector Pipeline, owned by Enbridge Inc. of Calgary and Detroit-based DTE Energy Co., will also lose some traffic on its route from Chicago into southern Ontario.
The Niagara Falls flow reversal will enable the TransCanada Mainline to capture “incremental market growth” developing in Ontario, such as a gas-fired power plant called York Energy Center, which is under construction near Toronto, the NEB is told.
“Bypass pipelines would likely have greater capacity, due to economies of scale, than TransCanada’s applied-for facilities,” says the message to the NEB and, through it, to western Canadian gas suppliers. Although TransCanada does not name the competitor most likely to build the big bypass, a candidate has surfaced in other evidence before the NEB.
Union Gas, a gas distribution and transmission network owned by Spectra Energy, has disclosed that it is working on plans for a new import route from New York State to its Dawn storage and trading hub in southern Ontario. Union has estimated that Ontario, Quebec and northeastern U.S. markets would support new facilities for about 1 Bcf/d in U.S. shale gas production. Supplies from Dawn cross central Canada and interconnect with pipeline border crossings into the northeastern U.S.
Even Union’s estimate of the potential northbound U.S. exports may be conservative. Supply projections by TransCanada predict that production from the Marcellus Shale will grow eight-fold to more than 8 Bcf/d by 2020.
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