TransCanada Cuts Pipeline Tolls in Bid to Boost Canadian Gasby
TransCanada Corp. expects higher prices for Western Canadian natural gas after the company offered lower pipeline tolls for producers shipping the fuel to Ontario and Quebec on its mainline system.
By making gas in Western Canada cheaper to transport to crucial markets in Eastern Canada, the company is moving to strengthen demand for domestic resources as competition rises from production on the U.S. East Coast
“One of the things we believe will occur as a result of the deal is it will help not only bolster production levels, but the price for gas in Western Canada,” said Stephen Clark, senior vice president for Canadian natural gas pipelines, in an interview Thursday. “It will be a notable improvement in gas price and will enhance and sustain the volumes of gas in Western Canada.”
Rates will be as low as 75 Canadian cents (57 U.S. cents) per gigajoule for the new 10-year contract, Clark said. Shippers will also be able to terminate their commitments before the 10-year period, he said. Bids for the contracts are being considered until Nov. 10.
Holding on to clients in Ontario and Quebec, Canada’s two most populous provinces, is becoming critical for western gas producers contending with ample supplies in the U.S.. Meanwhile projects to liquefy and export gas from Canada’s Pacific Coast have yet to move ahead. Competition is set to become even tighter with the proposed Rover and Nexus pipelines from the Marcellus and Utica shales in Pennsylvania and Ohio.
The new tolls still may not be low enough to induce producers to sign up, said RBC Capital Markets analyst Robert Kwan, in a note. “This is a logical next step, although it will be interesting to see whether the open season is successful given prior comments from gas producers on toll and term,” he said.
TransCanada is getting “positive feedback” from producers for the offer, Clark said. The larger producers such as Encana Corp. will have to participate in order for the volume threshold to be reached and for the deal to go ahead, he added.
Gas futures for November delivery advanced 14.2 cents, or 4.4 percent, to $3.352 per million British thermal units at 12:21 p.m. on the New York Mercantile Exchange.