TransCanada rule change raises ire of producers
Firms say limited access to storage, price swings are cramping operations
Natural gas producers in Alberta are frustrated with TransCanada Corp. for changing the way it operates its gas pipeline network with little notice, which has led to massive commodity price swings.
“TransCanada had an industry meeting back in August where they told industry they were changing their priorities,” Darren Gee, Peyto Exploration and Development Corp. president and CEO, told the Financial Post.
TransCanada operates the largest and most far-reaching network of natural gas pipelines in Alberta and is the sole outlet for many producers to transport their gas to markets within the province.
Under its new set of priorities, TransCanada gave producers who have firm-service contracts on its natural gas pipelines priority over shippers that use the service intermittently. Previously, TransCanada would scale back service for firm-service shippers to around 80 per cent of contracted capacity during maintenance to make allowances for spot shippers.
The uninterrupted, 100-percent service benefit to fixed-service shippers means that, at times of maintenance or outages, TransCanada would entirely cut service to shippers with interruptible contracts on its natural gas gathering and transmission network.
That has left the shippers unable to access the pipeline network to get to storage sites.
Gee said gas producers use storage as a critical “buffer” between demand and supply, drawing gas out of storage when needed in the winter and injecting gas into storage during the summer and leading up to Nov. 1.
“By prioritizing service, what this has done is restrict access to storage,” Gee said. “When you take storage away, what that means is the producers themselves have to throttle production to meet demand on any given day,” he said.
Another executive who spoke on condition of anonymity as he was worried it could negatively impact his company’s relationship with the Calgary pipeline operator, said “TransCanada has ‘overbooked the airplane’ for years.”
In various places on the system, including upstream of James River in central Alberta, TransCanada has more firm-service contracts in place than it can accommodate, exacerbating the problem, the executive said.
Natural gas prices at Alberta’s AECO pricing hub have been extremely volatile in September and October — jumping from a closing day average spot price of $2.01 per gigajoule to negative 36 cents per GJ on some days.
“I’ve followed AECO gas since 1993 and I’ve never seen negative pricing until this year,” GMP FirstEnergy analyst Martin King said at an industry event last week.
“If (gas) can’t get to storage and it can’t get out of the province, and since AECO is priced on the margin for interruptible supplies, prices get whacked.”
Many gas producers have had to shut in production at some of their wells in response to swings in gas prices at AECO to avoid selling their molecules for virtually nothing in the spot market.
Some producers believe the change in service should have been communicated much earlier to allow them to prepare.
“You can debate the policy until the cows come home but when you make a change of this magnitude and you give no one any time to compensate, then you get a disaster like we’ve got here,” an executive said, requesting anonymity.
Tracy Robinson, TransCanada senior vice-president, Canada gas, said the recent changes were made after speaking to customers.
“We’ve had a lot of feedback from our shippers that we need to better respect the firm contracts that we have sold,” she said.
TransCanada has been doing maintenance on its system and “a very large expansion project” on its gas transmission system, which has led to service reductions this year, Robinson said, adding the company has tried to give lots of notice before those reductions went into effect.
“We do know that any time we have to restrict flow for expansion or maintenance, it does have an impact on our customers and we’re sensitive to that,” she said.
Explorers and Producers Association of Canada, an industry group that represents many mid-sized gas producers, has been meeting with TransCanada to discuss how the change in service has affected commodity prices, president Gary Leach said.
AECO prices have been “uncoupled” from other price hubs around North America, including NYMEX and Dawn, he said.
TransCanada has also offered shippers firm-service contracts in order to mitigate the problem of access to storage, Robinson said.
Robinson said TransCanada considers its natural gas network the company’s “most significant asset,” and is working to expand the network especially given the rapid rate of supply growth of natural gas in Alberta and B.C.
Producers have expanded their production “at a greater rate than the local Alberta market,” and TransCanada is “working on every export point” to move more gas out of the AECO market, Robinson said.
When you make a change of this magnitude and you give no one any time to compensate, then you get a disaster.