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Shippers back Transcanada Mainline in boost for Canada natgas

CALGARY, Alberta (Reuters) -- Shippers have taken up Transcanada Corp's sweetened offer to move natural gas on its Mainline pipeline, the company said on Monday, granting Canada's remote western plays a boost against more easily accessible American counterparts.

Western Canadian shippers have been increasingly squeezed out of the Ontario natural gas market by eastern US shale basins like the Marcellus and Utica. They have comparable production costs to Canada's remote Montney and Duvernay gas plays, but lower delivery costs.

The resulting lack of movement on the Mainline in the last decade caused tolls to rise even more. That further reduces the competitiveness of Canadian gas, causing more shippers to leave in what the industry calls a "death spiral," according to an internal government briefing note seen by Reuters under access-to-information laws.

In its latest terms, TransCanada offered lower tolls at a 10-year term for 1.5 petajoules of capacity per day on its Mainline system to southern Ontario.

Such a move could have a "positive effect on the competitiveness" of Canadian natural gas, federal government officials told Natural Resources Minister Jim Carr in the November 2016 note, after TransCanada first offered its lower tolls.

In a statement, the Natural Resources Canada federal department said shippers' backing the new toll "highlights the ability of Canada’s natural gas industry to adapt to an ever evolving competitive environment."

TransCanada said it intends to file an application for approval with the National Energy Board (NEB) regulator in April and hopes to have an in-service date of Nov. 1, which would be before rival pipelines from US shale basins come online.

Energy Transfer Partners LP's Rover and Spectra Energy Partners LP's Nexus lines both have targeted in-service dates to Ontario's Dawn hub in November.

Energy infrastructure development has faced strong opposition in Canada among environmental and aboriginal groups, who may seek intervener status before the NEB to block TransCanada's application.

For its part, TransCanada will move "fairly quickly," said Tracy Robinson, the company's senior vice president of Canadian natural gas pipelines.

"There's no requirement for any build, so our producers can access the market upon the NEB approval," she said in an interview. "We believe it puts them in there competitively, regardless of the various options."

TransCanada's current terms allow shippers to exit after five years, but they must temporarily pay higher tolls than the 77 Canadian cents per gigajoule offered.

Robinson said the company does not yet know how many will trigger that option.

Reporting by Ethan Lou; Editing by David Gregorio and Lisa Shumaker


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