When the reconstituted Alaskan Northwest Natural Gas Transportation Co. presents its proposal for a northern pipeline this winter, it will be one item in a master plan crafted by TransCanada PipeLines Ltd. to maintain and expand the Canadian role in the continental market.

As outlined by TransCanada president Harold Kvisle in an interview with NGI, the plan calls for Canada – and his pipeline – to mature into the central transportation and trading zone of the North American market, as supply development marches northwards. Provided agreement can be secured from the Alberta and federal governments, as well as the rest of the gas industry, historic changes will be made to institutions that have been fixtures of the Canadian energy scene for half a century.

Kvisle said the steps include combining the main stems of the Nova pipeline grid in Alberta with TransCanada’s long-distance route into a single system, transferring jurisdiction over it to the National Energy Board (NEB), creating a trading hub at the consumer end of the gas market in central Canada, establishing a new toll regime, and expanding export connections into the United States.

Some elements of the master plan are already apparent, including the December sale of TransCanada Gas Services to Atlanta, GA-based Mirant Corp., the US$8-billion revival of the dormant Alaska Natural Gas Transportation System, and a “fair-return” application to the NEB for profit and toll increases intended to improve TransCanada’s chances of raising funds among investors. The plan is expected to unfold fully by the fall of 2002, a target set by the NEB last fall for TransCanada to reach settlements with customers and submit proposals for a new gas transportation regime.

Kvisle said TransCanada recognizes the history, development ambitions and political sensitivities that kept Nova under the Alberta Energy and Utilities Board’s wing. The status quo has been zealously defended by Alberta leaders since the grid was sired by an act of the legislature in Edmonton as an instrument of provincial economic policy in the 1950s.

Kvisle also said recognition is spreading that circumstances have changed. He reported TransCanada has achieved encouraging results in talks on making adaptations to the new times with Alberta and federal officials as well as the Canadian Association of Petroleum Producers. In Alberta, Energy Minister Murray Smith has emerged from the talks as at least a moral supporter of the scheme, saying the province stands to retain its stature as a key supply and trading base even as its own reserves run down and the production sector’s center of gravity migrates northwards.

The forthcoming TransCanada-Alaskan Northwest entry in the Arctic gas megaproject race will counter the threat of a bypass that would site the pipeline entry and exit points exclusively on U.S. territory, cutting Canada out of the northern action. The nine-company consortium – TransCanada, affiliate Foothills Pipe Lines, Westcoast Energy, Duke Energy Gas Transmission, El Paso Corp., Enron Transportation Services, PG&E Corp., Sempra Energy International and Williams Gas Pipeline – will present its proposals as soon as possible to Alaskan producers, Kvisle said.

The TransCanada proposal, widely misinterpreted in Canada before Christmas as a pared-down version of the Arctic gas megaproject, is only modest by the standards of a mammoth plan that Alaskan producer companies considered and rejected as uneconomic. Cost estimates for the mammoth plan swelled to a range of US$16-$20 billion because it included — on top of the northern link to Prudhoe Bay — a new “express” pipeline across Canada and the middle-western U.S. to Chicago. The TransCanada-Alaskan Northwest proposal cuts the price into the US $8-billion range by reviving the 1970s ANGTS plan for an Alaska Highway route, capable of carrying 2.5 Bcf/d at first, then being powered up to 4 Bcf/d by additions of compressors. The Alaskan link would stop at the current northern end of the Canadian pipeline system, which would relay the gas to a variety of markets depending on their needs. At TransCanada, the same strategy is being proposed for distributing production from the Canadian Arctic via the potential Mackenzie Valley pipeline.

The master plan calls for the Canadian grid ultimately to handle about 5 Bcf/d of northern gas. Kvisle calculated that TransCanada’s arch-rival, one-year-old Alliance Pipeline, would promptly add compressor power to take about 500 MMcf/d. TransCanada, currently running at 80-85% of capacity and seeing reductions in Alberta production on the horizon, would handle the rest of the northern gas. Affiliate Foothills Pipe Lines, installed 20 years ago as a “prebuild” of southern legs in the ANGTS, stands available to expand its routes to Chicago and California, Kvisle said.

In courting Alberta support, the TransCanada president pointed out Alaskan gas will be rich in liquid byproducts needed for expansion by the province’s petrochemical industry. Unlike the mammoth express-line scheme, the TransCanada approach would run northern gas through Alberta liquids-extraction plants.

Kvisle acknowledged that U.S. gas producers will make the decisions about Alaskan development, and current markets are bound to affect long-range thinking. But he said volatile prices have not changed the outlook for rising gas demand and limited supplies that triggered the revival of northern development planning. Kvisle predicted that the principal front for supply competition in North America will become Arctic reserves versus liquefied natural gas from offshore sources, with long-range average prices of US$3 or better making both viable contenders.

Within Canada, TransCanada’s quest for a political switch to federal supervision by the NEB is driven by the continental transportation and trading plan. Kvisle said TransCanada needs to complete the amalgamation with Nova, which has remained a separate subsidiary under Alberta regulation, in order to expand the combined system into the Northwest Territories and northeastern British Columbia. Only the NEB can authorize the necessary boundary crossings.

The change in jurisdiction is expected to affect only long and large-diameter core pieces of the Nova system, leaving shorter and smaller collector lines under provincial control. TransCanada expects “substantial growth” in B.C. supplies and “we’d like to be able to compete aggressively for all that gas,” Kvisle said. He reported production companies agree that the TransCanada-Nova system can be expanded more economically than Westcoast Energy Inc.’s B.C. grid, which is running full and offers fewer market outlets.

Kvisle said TransCanada further needs to complete its amalgamation with Nova in order to establish a national tariff regime. That is a requirement of the transportation and trading elements in the master plan. The idea is to establish a nation-wide trading and transportation system by creating a central Canadian counterpart to the NIT or Nova inventory transfer. In Alberta, the arrangement enables anyone with capacity to inject gas anywhere into the Alberta pipeline grid to make sales at any exit point. The system effectively turns all of Canada’s chief gas-producing province into a giant trading hub.

TransCanada calls the proposed central Canadian counterpart MIT, or market inventory transfer. A ring-shaped network around Ontario, it would be the mirror image of NIT, Kvisle said. As in Alberta, MIT users would be able, under standardized service terms and charges, to obtain gas off the pipeline at any eastern exit point regardless of where it entered the market region via the TransCanada mainline into northern Ontario or affiliated Great Lakes Gas Transmission into the southern half of the province.

Kvisle said TransCanada’s new service and tolling regime will recognize that much of the industry wants to switch to short transportation contracts. In combination, NIT, MIT and the new tolling regime are intended to secure for TransCanada status as an international delivery and trading network for gas produced anywhere north of the border with the “Lower-48” U.S. states. Kvisle described a contest now getting under way before the NEB over TransCanada’s “fair-return” application for increased profits and tolls as a case of haggling among friends, with the board serving as arbitrator of a financial dispute and shippers continuing to co-operate on other elements of the unfolding master plan.

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