TransCanada Seeks to Lure Shippers With Gas Line Toll Cut

Updated on
  • Company pitching 40-50% discount for new long-term contracts
  • Encana says new tolls would let it compete in Eastern Canada

TransCanada Corp. is preparing to gauge interest this fall in a cheaper service for customers using its pipelines to move natural gas across Canada following months of talks with producers.

The company is discussing the potential for new 10-year transportation contracts from Alberta to Ontario that would cost 40 to 50 percent less than a current comparable toll, Mark Cooper, a spokesman for the Calgary-based company, said Thursday by phone. If a so-called open season process moves forward as planned, shipments under the new rates could start in late 2017, he said.

A boom in U.S. gas supply from shale basins has sidelined Canadian producers, who have long called for reduced rates as they seek to guard their home turf. Discussions have been taking place for months as TransCanada tries to boost business on systems including its Canada-only mainline and the Great Lakes network, which dips into the U.S. before reaching Ontario. On Thursday, executives at gas producer Encana Corp., which is part of the talks, said the lower tolls would help it compete.

Drawing Attention

“It’s getting a lot of attention and a lot of interest from other producers as well,” Renee Zemljak, executive vice-president of midstream, marketing and fundamentals at Calgary-based Encana, said on a conference call.

The long-term service being discussed would carry volumes from Empress, Alberta, to the hub run by Spectra Energy Corp.’s Union Gas at Dawn, Ontario. The new toll wouldn’t replace or reduce tariffs for existing services, but would be used to attract new volumes to the system. TransCanada’s mainline tolls are approved by Canada’s National Energy Board.

The cheapest current rate to get from Empress to Dawn is C$1.41 per gigajoule, before variable costs, but requires the use of both the mainline and Great Lakes systems, Cooper said. Using only the mainline has a fixed cost of C$1.829 per gigajoule and a total cost of C$1.926 factoring in fuel, based on TransCanada’s online toll calculator. That’s more than the average spot price for gas this year at the benchmark AECO hub in Alberta.

Rate Cut

A rate cut could let Canadian companies take back their traditional market from the Americans, according to Goldman Sachs Investment Research. With an Empress-to-Dawn tariff of about 85 Canadian cents, returns would be higher to take gas on the 2,400-mile (3,862-kilometer) journey from the Montney shale that straddles Alberta and British Columbia to Dawn, compared with about 400 miles for volumes from the Marcellus and Utica in the U.S. via the proposed Rover or Nexus pipelines, analysts led by Brian Singer wrote in a July 19 report.

The Montney volumes could displace 1 billion to 2.5 billion cubic feet a day of U.S. gas by reducing exports to Canada or raising U.S. imports from the northern neighbor, according to the report. However, the success of the talks could hinge on whether producers such as Encana are willing to commit to shipping meaningful volumes of 1 billion to 2 billion cubic feet a day under long-term contracts to give the system the additional business TransCanada is seeking, the analysts said.

Volumes on TransCanada’s mainline from Western Canada to eastern markets have been more than halved since 2000 to about 3 billion cubic feet a day last year, according to data from the pipeline operator.

Jay Averill, a spokesman for Encana, declined to comment on the company’s contracts and the extent to which it already ships on the mainline. The lower tolls would make Encana’s Canadian gas competitive in Eastern Canada, Doug Suttles, chief executive officer, said on the call.

“We believe we can go head-to-head with this adjustment to the tolling structure with gas from anywhere into the new markets in the East,” Suttles said.