CALGARY: Western Canadian natural gas producers could get a US$25 billion boost in revenues with a pipeline shipping deal struck with TransCanada Corp., analysts said.
TransCanada Corp. announced that domestic gas producers agreed to send 1.5 billion cubic feet per day more gas between Empress, Alta. and Dawn, Ont. on its underutilized mainline over the next 10 years.
The move is intended to send more Canadian gas to the Southern Ontario market before competing pipelines from Pennsylvania are built and crowd domestic gas out of the region. Analysts say the deal will also save producers in Alberta and B.C. billions of dollars of lost revenues from lower prices and a smaller share of the market.
Solomon and Associates director, gas services Cameron Gingrich said producers would have lost a major market without the deal, and the lack of a deal would have also caused AECO, Alberta’s natural gas benchmark, to drop an average of 19 cents per gigajoule and production from Western Canada to fall by 1.1 bcfd.
“The combination of lower production levels and the lower AECO price would end up with US$25 billion less in revenue for the Western Canadian basin” over ten years, Gingrich said.
“That goes to producers in terms of business plans, that goes to the Crown in terms of royalties and there’s a multiplier effect on that in terms of activity in the [northwest Alberta] region – the hotels, the food and the drilling,” he said.
“This is as big as an LNG announcement in some ways because without this deal we would have seen a smaller Canadian natural gas industry,” ARC Financial Corp. vice-president, research Jackie Forrest said.
TransCanada had previously failed to convince domestic gas producers to send more volume down its underutilized line, but Gingrich said smaller natural gas companies had since learned that American producers in Pennsylvania and Ohio were threatening their prices in both Ontario and Alberta and committed to the most recent, lower-cost proposal.
TransCanada will now need to seek regulatory approval for the new tolling arrangement from the National Energy Board and the company said it intends to apply for approvals by April.
The company hopes to have the new service agreements approved and in place by November, which is also when Energy Transfer Partners’ Rover pipeline is expected to be in service.
