Ontario natural gas prices drop as Alberta firms fight for market share.
PIPELINE TOLLS CUT
Alberta natural gas producers are looking to wrestle back market share from their U. S. counterparts in booming Eastern Canada, after TransCanada Corp. slashed its tolls by 58 per cent on its pipeline system that sends gas from Empress, Alta. to southern Ontario.
TransCanada agreed to cut its tolls to 77 cents per gigajoule from $ 1.86 for 23 shippers, who in turn, committed to ship 1.4 billion cubic feet of natural gas per day on the system for 10 years. The new contracts were signed in March and approved by the National Energy Board on Sept. 21, which led to an immediate drop in Ontario natural gas prices.
Advantage Oil and Gas Ltd. president and CEO Andy Mah said the agreement with TransCanada would benefit Calgary- based producers by providing economic access to the important Toronto-area heating market.
“Providing the physical movement of gas into the Eastern Canadian markets allows us to not let that market deteriorate further if there’s competition from the U.S. side,” Mah said.
“This approval is the first piece of reaching out beyond the Alberta border and accessing a market where we’re going to compete head- tohead,” Mah said, adding that west- ern Canadian gas producers can now compete directly against companies in Pennsylvania who are also shipping more natural gas to Ontario.
Ed Kallio, president of Eau Claire Energy Advisory, said Ontario is now at the centre of “a battle between western Canadian producers and Appalachian producers” to ship the lowest cost natural gas to the province.
The competing Rover Pipeline, by Energy Transfer Partners LP, is expected to be complete by the first quarter of 2018 and deliver an additional 1 bcfd of gas to Ontario from Pennsylvania.
“There is certainly going to be a lot tougher competition,” GMP FirstEnergy analyst Martin King said, as a result of both pipelines feeding more gas into Ontario.
TransCanada would consider more deals to ship natural gas from Western Canada to the Dawn, Ont. storage hub given the success of its reduced tolling arrangement, company spokesperson Shawn Howard.
There is still unused capacity on TransCanada’s mainline, which ships about 3.5 bcfd from Western Canada to Dawn.
But the reduced tolling arrangement is currently only available to those who bid in the open season and for the amount they contracted, Howard noted.
“Since the service is beneficial for producers, the pipeline and existing shippers, and has now been approved by the NEB, TransCanada is open to other ideas that are also mutually beneficial.”
The cut in toll should also see Ontarians’ winter heating bills fall this year as the country’s most populous province becomes a battle ground for natural gas competition.
“The additional volumes from Empress (and happening sooner) have clearly put a bearish spin on the Dawn market,” GMP FirstEnergy’s King wrote in a research note. The discount at Dawn relative to NYMEX widened from 5 U. S. cents per thousand British thermal units to 15 U. S. cents per mmBtu immediately after the NEB’s decision, he said.
King said the drop in Dawn prices would likely reduce the cost to heat homes in Ontario but those effects could be muted as distribution companies include various riders and charges onto consumers’ bills.
The Independent Electric System Operator data shows natural gas contributes to 28 per cent of the province’s electric transmission.
Natural gas prices in Ontario could also drop below prices at Henry Hub in Louisiana, which would be a significant reversal of the norm over the last 10 years, Solomon Associates director, gas services Cameron Gingrich said in an email. Dawn prices have typically been 35 cents higher than Henry Hub in the last decade, he said.
“The ( new toll) is truly a win- win for central Canadian gas consumers who benefit with increased access to stable supply at lower prices and Western Canada producers who now have the ability to market 1.5 bcfd of gas via existing capacity with economic tolling structure,” Gingrich said.
Gas utilities in Ontario, i ncluding Enbridge Inc.owned Union Gas, did not respond to a request for comment on how consumers would be affected by the falling gas prices.
NYMEX gas prices have trended up in the week since the NEB approval and edged up again Friday to close US$3.02 per mmBtu.
In Alberta, meanwhile, AECO gas prices have fallen sharply on both the spot marke t — where AECO prices fell all the way into negative territory on Sept. 25 and trended below 20 cents for the week — and in the futures market as delivered next month tumbled to $1.12 this week.