National Post (National Edition)
Companies could raise stakes on volume destiny
Doubts linger over LNG export terminals
CALGARY • After inking a deal to send 1.5 billion cubic feet per day more Western Canadian natural gas to Toronto, domestic companies are now considering sending another 500 million cubic feet per day to Chicago as Canadian liquefied natural gas projects are stalled.
Alliance Pipeline, a venture jointly owned by Enbridge Inc. and Veresen Inc., asked domestic natural gas producers to send additional volumes down its pipeline to Chicago late Monday after TransCanada Corp. announced it had struck a deal with producers to send more gas to Southern Ontario.
Alliance’s proposal is being considered at a time when many domestic producers are uncertain whether major LNG export terminals proposed on Canada’s West Coast will get built after years of delays, and are looking for new ways to market their gas.
Solomon and Associates director, gas services Cameron Gingrich said TransCanada’s deal was intended to conserve domestic producer’s market share in Toronto, but Alliance’s proposal would actually grow Western Canadian market share in the U.S. Midwest.
“This speaks to industry coming to terms with controlling its own destiny,” Gingrich said, adding that natural gas producers in the U.S. have been consistently edging Canadian companies out of their traditional markets for years and domestic companies are finally beginning to push back.
Alliance vice-president of commercial operations Dan Sutherland said in a release that his company’s pipeline is already 90 per cent full and that “customer demand is certainly the driver for exploring a potential capacity expansion.”
The proposed expansion of 500 million cubic feet per day would boost the line’s capacity by 30 per cent from 1.6 bcfd to 2.1 bcfd with a planned operational date of late 2020.
Explorers and Producers Association of Canada president Gary Leach, who represents mid-sized oil and gas produces, said the current system “is pretty much maxed out.”
“The additional capacity is going to be snapped up,” Leach said. “This is a medium- and longer-term boost to optimism.”
He said that Canadian companies could help “backfill” natural gas demand in the U.S., where producers are sending more of their gas overseas through LNG export terminals. “They’ve been successful, unlike us, in developing exports,” Leach said.
Seven Generations Energy Corp. spokesperson Alan Boras said his company would consider the opportunity to send more on the system but the cost would need to be competitive as Chicago is a market that processes gas from many different North American plays.
Boras also said that more West Coast-bound export infrastructure was needed in Canada.
Gingrich said natural gas from the Montney formation in northwestern Alberta and northeastern B.C. is “some of the cheapest resource in North America” and incremental volumes could compete in Chicago.
He also the Alliance pipeline could be expanded beyond the 500 mmcfd the company asked for this week if producers decide to commit more of their volumes to the line. He said the pipeline was originally designed so that it could be expanded to handle twice its current capacity, which would be 3.2 bcfd.
AltaCorp Capital analyst Dirk Lever said the proposed pipeline expansion coincides with construction wrapping up at Aux Sable, another Enbridge and Veresen joint-venture, which operates a natural gas fractionation plant in the Chicago area at the end of the pipeline.
Aux Sable’s facility there recently underwent a large expansion and is now able to process 2.1 bcfd of natural gas, meaning the increased shipments along the Alliance pipeline would fill up the expanded facility.
CUSTOMER DEMAND IS CERTAINLY THE DRIVER FOR (CAPACITY) EXPANSION.