Growth of shale and tight natural gas in NW Alberta, NE BC led to “pinchpoints” moving gas to mainline in SE

TransCanada Corporation is spending $2.4 billion to expand the  of its NOVA Gas Transmission (NGTL) system to expand exports from Western Canada by one billion cubic feet of natural gas per day (Bcf/d) at the interconnection with its Canadian Mainline.

NGTL recently completed an open season for existing and export capacity at the Empress/McNeill Export Delivery Point that was oversubscribed. Shippers have executed binding agreements for 1.0 Bcf/d of expansion capacity for firm service that will commence in November 2020 and April 2021. The average of the contract terms awarded for the expansion capacity is 28.6 years.

“The expansion of the lines to service the Eastern Seaboard of Canada and US takes advantage of increased Canadian supply and lack of US progress to allow natural gas into New England,” University of Houston energy economist Ed Hirs said in an email.

“Boston imports natural gas just like Tokyo.  It is a major market opportunity for TransCanada.”

NGTL says it executed contracts for incremental firm receipt service totaling 620 million cubic feet of natural gas per day beginning in April 2021.

These contracts will connect new supply in the low-cost Montney, Deep Basin and Duvernay plays to the NGTL System and provide shippers access to local and export markets, says Russ Girling, TransCanada’s president and chief executive officer.

“This program will provide much-needed transportation solutions for Western Canadian natural gas producers and unlock access to existing Canadian Mainline capacity,” said Girling in a press release.

“The NGTL System is a strategic TransCanada asset and we are committed to providing shippers with timely and competitive options to connect growing basin supply to downstream markets throughout North America.”

Blake Shaffer says that while this expansion will allow more Western Canadian Sedimentary Basin gas to compete with NE US shale, economic competitiveness still has more to do with renegotiated TCPL mainline tolls.

“This expansion is about relieving an intra-Alberta pinchpoint. It will provide more ability for gas to move from the high growth areas of the Montney and Duverney in northwest AB to exit points in the southeast,” the University of Calgary economist said in an email.

“Historically, congestion on the Nova system was never a big problem. Shippers could inject and withdraw most location combinations. Now with the growth of shale and tight gas in the NW of Alberta (coupled with production growth in NE BC) there are more frequent constraints moving gas from the NW across the province to the SE. This expansion should help relieve those constraints.”

Shaffer expects producers will seen an improvement in the AECO price differential in the future.

Canada is a swing supplier of natural gas for the US, says Maria Sanchez, manager of energy analysis for DrillingInfo, and exports average about 5.5 Bcf/d, down from 8-9 Bcf/d in the early 2000s.

“What can make the difference is netbacks. In order for imports to increase, Canada must price itself lower in order to compete with US gas and as we know Marcellus/Utica breakevens are very low,” she said in an email.

Girling says TransCanada will continue to work with industry to facilitate economic access for natural gas to Eastern Canada and the US Northeast.

The company says that incremental receipt and export delivery contracts will drive a $2.4 billion expansion program that will include approximately 375 kilometres (233 miles) of large diameter pipeline, compression facilities, meter stations and other associated facilities.

NGTL anticipates filing a project description with the National Energy Board by the second quarter of 2018 to initiate the regulatory review process for the expansion and, subject to regulatory approvals, it expects construction will begin in 2019.

The $2.4 billion announcement supplements NGTL’s current ongoing substantial capital expansion program, bringing the total near-term NGTL growth commitment to approximately $7.2 billion.