A core of customers is staying loyal to TransCanada Corp.’s troubled natural gas Mainline from Alberta to Ontario, Quebec, and border crossings into the United States, the beleaguered transporter said.
Of delivery volumes carried under firm transportation (FT) service contracts that expired Nov. 1, 90.4% were renewed, TransCanada has told the National Energy Board (NEB). The renewal figure counters critical gas shippers’ predictions that the plagues of excess capacity and rising tolls on the Mainline would worsen if the NEB approved a TransCanada application to freeze rates at current levels as an “interim” measure for 2012.
Further erosion of FT contracts was forecast in protests against the proposed freeze by the Association of Power Producers of Ontario (APPrO), New York City gas importer Brooklyn Navy Yard Cogeneration Partners, and the gas-fired York Energy Centre and Goreway Power Station near Toronto (see Daily GPI, Dec. 5).
TransCanada’s application seeks an FT rate of C$1.89 per gigajoule (GJ) (US$1.98/MMBtu) for 2012 deliveries from the starting point of the Mainline in southeastern Alberta at Empress to the Dawn storage and trading hub in southwestern Ontario. The proposed FT charge translates into an overall Mainline benchmark Eastern Zone Toll (EZT) of C$2.24/GJ (US$2.35/MMBtu) for deliveries from Empress into the big central Canadian energy markets of the Toronto-Montreal region.
Opponents of TransCanada’s 2012 plan seek a 27% cut in the EZT, back down to its 2010 level of C$1.64/GJ (US$1.47/MMBtu).
Unless the toll is cut, the protesting shippers predict that the Mainline will lose more than 1 Bcf/d in FT contracts when they come up for renewal next year. That would leave Canada’s biggest gas pipeline with only 300 MMcf/d of reliable bookings for long-haul deliveries, filling just 4% of its capacity to carry 6.9 Bcf/d.
“That assertion is rank speculation that is unsupported by fact,” TransCanada said in a filing with the NEB in reply to the protests against its proposed 2012 rate freeze. “The fact is that 90.39% of the Mainline firm contract quantity that was scheduled to expire on Nov. 1, 2011, was renewed — decisions that were made by shippers in April 2011 when the tolls were at the level now proposed in the [interim rate] application.”
Turning the toll clock back to the lower rates of 2010 “would result in substantial under-collection of the Mainline revenue requirement and therefore subsequent rate shock and market disruption,” TransCanada warned.
APPrO said TransCanada is being selective with grim facts about its troubled Mainline. The power producers said, counting firm service contracts of all types, “962,381 GJ/d [914 Bcf] of firm volumes have have not been renewed and either have or will exit the system between January 2011 and May 2012.” So far this year, the Mainline is batting zero on renewals of long-haul FT contracts that expire next year.”
The 2012 toll freeze was proposed as a temporary stopgap until a much bigger, more complex and hotly contested application for a thorough overhaul of the Mainline business and rate structure can work its way through the regulatory process. The case is expected to be lengthy and hard-fought for much of next year.
The outlook for the pipeline system is further complicated by a parallel application for new facilities that would accomplish a historic about-face for the Canada-U.S. gas trade — in favor of U.S. suppliers (see Daily GPI, Nov. 14).
TransCanada is seeking prompt approval of pipe and hardware additions needed to reverse flows at the Niagara Falls border crossing between northwestern New York State and southwestern Ontario. Canadian exports would stop. They would be replaced — as of Nov. 1, 2012, under TransCanada’s plan — by imports to the Dawn storage and trading hub from the U.S., with most of the flows sourced from the Marcellus Shale region.
The trade about-face is supported by central and eastern Canadian gas users, with the Ontario government also backing the plan as a way for Canadian consumers to gain ability to shop for supplies on a meaningful scale.
Alarmed Western Canadian gas suppliers predict that the Niagara Falls reversal would worsen the outlook for the Mainline. Its troubles are blamed on shrinking production from aging Alberta gas reserves, rising consumption by the province’s thermal oilsands projects and competition from the 11-year-old Alliance Pipeline to Chicago from northern British Columbia, as well as growing U.S. supplies.
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