TransCanada announced last week it would offer lower pipeline tolls to producers to ship natural gas from Western Canada to Ontario. The company believes this move will help Canadian producers to protect their market share in Eastern Canada in the face of rising competition from the US.
TransCanada has launched an open season aimed at producers interested in securing long-term contracts to transport gas on its mainline system to the Ontario’s Dawn trading hub from Empress, Alberta. Gas producers are being offered a fixed-rate, 10-year contract that would enable them to access the Ontario, Quebec and US Midwest markets. The new tolls – which are around half the value of other tolls on the mainline – are conditional on a total subscription of at least 1.5 million gigajoules (40.3 mcm) per day. TransCanada is targeting an in-service date of November 2017.
“It’s a win-win for both the producers and us,” the Globe and Mail quoted a TransCanada senior vice president and general manager for Canadian gas pipeline operations, Stephen Clark, as saying. “When we look at how Western Canadian production costs stack up against other sources of supply, combined with the toll that we’re proposing, we think the delivery costs of gas will be competitive in the market.”
Gas producers in Western Canada are seeing their market share in Central Canada and the US eroded owing to growing US shale gas supply from the Appalachian Basin, and TransCanada hopes to help stop or even reverse this.
The Globe and Mail cited Goldman Sachs as saying the weak Canadian dollar, strong condensate production and relatively low costs in the Montney formation could help Canadian producers compete with their US counterparts.
TransCanada’s latest tolls are lower than what it initially offered earlier this year. Whether producers decide to accept them remains to be seen. However, there are warnings that this offering is not flexible, as producers will be locked in a long-term, restrictive contract. The latter, however, would give producers the right to opt out after five years, with some financial penalty. And Clark noted that the company would not make any more changes on the toll service rates.