Natural gas producers in B.C. and Alberta have signed up for long-term commitments to ship gas on the TransCanada Corp. (TSX:TRP) Canadian Mainline to Eastern Canada – a move that will make them more competitive with American gas producers.
TransCanada announced Monday March 13 that it had concluded a successful open season, after offering gas producers a simplified toll rate in exchange for long-term commitments. Producers have signed on for binding 10-year commitments.
According to an analysis in November, HSB Solomon Associates LLC predicted gas production in Western Canada could fall by 1.1 billion cubic feet per day over a nine-year period, and that securing long-term commitments would be worth $25 billion to the Canadian gas industry between 2018 and 2027.
B.C. is Canada’s second largest gas producer, so the agreement is an important one for B.C.
American producers in the Marcellus and Utica shale formations in the U.S. northeast have been increasing their exports of gas to Eastern Canada in recent years. Meanwhile, TransCanada’s Canadian Mainline pipeline, which runs from Alberta to Southern Ontario, has been under utilized.
In November, TransCanada held an open season offering, but failed to get long-term commitments from Western Canadian gas producers. It recently held a second open season, and offered a simple, flat toll rate of $0.77 per gigajoule (GJ). Previously, rates had varied both above and below that new flat rate.
TransCanada said that an undisclosed number of gas producers in the Western Canadian Sedimentary Basin (WCSB) have agreed to the new toll rate and have signed up for binding, long-term contracts to take capacity on the pipeline.
"Today, WCSB producers are facing a much more challenging landscape than they have in the past,” TransCanada CEO Russ Girling said in a press release.
“This new offering helps our customers compete more effectively by utilizing existing capacity on the Canadian Mainline, and demonstrates the importance and value of this system to deliver their products to markets in Eastern Canada and the Northeast U.S.”
"It was nice to see the see the level of cooperation between gas producers and TransCanada to establish a competitive toll structure that will ensure B.C. natural gas can be delivered to Eastern Canada at a competitive cost,” B.C. Natural Gas Development Minister Rich Coleman said in a press release.
Coleman said the new agreement will create 6,000 new jobs in Western Canada. Those job numbers are based on estimates from the Canadian Energy Research Institutes.
The Montney formation, which straddles Alberta and B.C. and is rich in natural gas liquids, has emerged as one of the most prolific, low-cost shale formations in North America, which explains why energy and midstream companies have been pouring billions into new wells and infrastructure in Northeastern B.C. at a time when North American gas prices remain so low.
