Mainline Pipeline transports natural gas from Alberta to Eastern Canada, Northeastern US
TransCanada has lowered tolls for customers using its Mainline Pipeline, raising the competitiveness of Canadian natural gas for the near future. However, industry insiders say access to Asian markets is the key to the long-term survival of the industry.
Currently, Canada’s $45 billion gas industry relies solely on North American demand. Canadian producers are now being squeezed in the eastern US market by American rivals who have lower transport costs.
Along with increasing supplies, demand in the United States is flattening.
A report released on Monday by the Conference Board of Canada predicted a bleak outlook for Canadian producers who will also have to compete against the Rover Pipeline built by Energy Transfer Partners, which targets the same areas as Mainline.
“This is a worrisome development for Canadian producers,” according to the report.
Industry executives say even with Mainline, Canadian producers whose product trades at a discount, need to look to new markets in Asia.
CNRL, a shipper on Mainline, told Reuters the lower toll is a “positive step”, but the company supports accessing new markets.
Stuart Mueller of the Canadian Association of Petroleum Producers said the Mainline Pipeline “is kind of the last pipe we have that has unutilized space”.
The National Energy Board says Mainline can transport about 3.6 million to 6.9 million gigajoules of gas per day on different parts of the system, but utilization rates have been 60 per cent at most.
Mueller told Reuters that while North American demand exists, further growth for Canadian producers will have to come by accessing the offshore market through LNG.
Currently, there are currently about 20 LNG export facility proposals in Canada, most of them on the west coast with the Asian market in mind. There are no LNG export facilities in Canada currently.
According to a 2016 internal government memo seen by Reuters, if “several strategic terminals” get built, Canada can become a “cost-competitive, secure and stable supplier” of gas globally.
Natural Resouces Canada, the federal department led by Jim Carr, said in a statement that falling exports to the US highlights the need for LNG terminals even if TransCanada drops its costs for Mainline Pipeline tolls.
Shippers contracting to transport natural gas on the Mainline Pipeline are also concerned about cancellation clauses should BC LNG plants be built. The current contract with TransCanada allows for shippers to exit after five years on the condition they pay higher tolls for two years before doing so.
“If we are able to secure the Asian markets in the next five to 10 years, then we might see some contracting just being canceled,” Dulles Wang at Wood Mackenzie told Reuters.
Shawn Howard, spokesman for TransCanada said in a statement the export terminals do not diminish the need to serve the North American market.