Pipeline deal boosts Western producers

TRANSCANADA

and Associates director, gas services, 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,” 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 region — the hotels, the food and the drilling.”

“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. “All else being the same, if this deal didn’t go forward I would have expected this industry to shrink by 1.5 bcfd over the next few years,” Forrest said.

Eau Claire Energy Advisory principal Ed Kallio also said the deal would provide a boost to AECO pricing for all domestic natural gas producers — even those that didn’t sign onto TransCanada’s new arrangement.

“It helps everybody,” Kallio said, adding, “If you’re clearing more gas out, there’s more demand at AECO to fill that pipe.”

TransCanada had previously failed to convince domestic gas producers to send more volume down the 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.

ARC Energy Research Institute executive director Peter Tertzakian said in an email that Canadian gas is competitive with plays in the U.S. but “transportation has always been the ‘moose in the room’ given that we are far away from market and at the mercy of an oligopoly of pipeline companies to get the stuff to market.”

He said Monday’s deal brings competitive transportation prices to producers in the West, but gas producers might soon face the same pipeline constraints that oil producers currently face.