Canadian natural gas exporters have wasted no time in takingadvantage of their new power to shop around for markets as a resultof expanded pipelines.

Marketing targets began shifting as soon as new capacity openedup this year, according to quarterly reports on the gas trade bythe United States Department of Energy’s Office of Fossil Fuels.And that’s before the floodgates open with new U.S. importpipelines next year.

In first-half 1999, exports jumped by 36% on the expanded andextended route to the Middle Western states run by Foothills PipeLines and Northern Border Pipeline. Shipments fell by 12% via theexport path to California and the northwestern states of AlbertaNatural Gas, Pacific Gas Transmission, Pacific Gas & Electricand Northwest Pipeline.

Exporters put to use an average 80% of the 700 MMcf/d incapacity that Foothills-Northern Border added last winter, when italso extended its reach to Chicago. Shipments rose by an average562 MMcf/d in first-half 1999 to 2.1 Bcf. But deliveries to theU.S. western seaboard on the Pacific Gas route declined an average279 MMcf/d to 2.14 Bcf.

Traders and pipeline executives say the shuffle reflected marketconditions – chiefly prices and the availability of U.S.-sourcedgas to markets reached by the export lines. In second-quarter 1999,prices at the international border for West Coast-bound gas ran aslow as US$1.11 per MMBtu for sales over short periods and $1.44 inlong contracts. Sales of all types to the Midwestern U.S. held upat a minimum $1.56.

Traders, analysts and especially troubled pipeline managers saythis year’s shuffle of export sales targets was an early taste of ahotly competitive market emerging in transportation services forCanadian gas. TransCanada PipeLines describes big changesdeveloping in new evidence it has laid before the National EnergyBoard, to support its contested proposals for more flexibility insetting tolls.The nation’s biggest gas transporter says it faces”significant and growing competition in each of its markets,”including its old mainstay of deliveries to central Canada.

Alliance Pipeline’s route from northern British Columbia toChicago, scheduled to be completed in 10 months, plus theassociated Vector route from Chicago to the Dawn gas trading hub insouthern Ontario, create a bypass of the entire TransCanada system.But Alliance is far from the only competitor. TransCanada says itsrivals also include newly-completed Maritimes & NortheastPipeline to New England from Nova Scotia’s Sable Offshore EnergyProject; four short connections between Midwestern states andcentral Canada; and four projects to serve the U.S. Atlanticseaboard by American pipelines.

Even before Alliance is finished, TransCanada says it alreadyfaces 13 competitors across its markets throughout central Canadaand the northern regions of the U.S. The gas delivery business isbecoming like trucking – so complex “it is not possible to analyzeand predict the effect of a change in any one factor on the marketfor TransCanada service,” the pipeline has told the NEB.

TransCanada says that as space opens up on Canadian pipelines,it will become increasingly vulnerable to U.S. competition.TransCanada estimates that the Tennessee, Texas Eastern andTranscontinental systems could increase deliveries to thenortheastern states by 1.5 Bcf/d by taking competitive actions toincrease their utilization rates beyond their average 82% in 1999.In the Midwestern states, the ANR, Texas Gas and Trunkline systemscould raise deliveries by 2.5 Bcf/d if they took action to improvetheir average utilization of 71%, TransCanada says. As the biggestCanadian gas transporter by far, TransCanada is feeling the effectsof competition first and the most. Losses of firm customers onlybegan with cancellations of about 580 MMcf/d in long-termtransportation contracts as of Nov. 1.

TransCanada, in its new submissions to the NEB, says about 1.8Bcf of daily capacity on its system could be relinquished inNovember of 2000, by further cancellations of long-term firmservice contracts. Remaining holders of firm capacity stand to payheavy penalties, TransCanada adds. Their tolls could rise by about50% to C$1.56 per gigajoule (US$1.04) by 2004, TransCanada says. By2007, the toll could skyrocket to C$3.25 (US$2.17) if every shipperwith a right to drop long service contracts took advantage of it.The rate is projected to reach C$1.64 (US$1.09) in 2000 even if nostampede away from firm contracts develops.

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