From the Financial Post

The Financial Post has learned that multiple natural gas producers believe the proposed pipeline will hurt rather than help the market

CALGARY – Regulatory hearings for a natural gas pipeline that has divided the Canadian oilpatch opened amid tense exchanges Monday, as companies argue that the proposed pipeline will hurt rather than help the Western Canadian natural gas market.

Lawyers packed a National Energy Board hearing room almost to capacity Monday as parties argued over the viability of TransCanada Corp.’s North Montney Mainline natural gas project, and the prospect of flooding the already over-saturated Alberta natural gas market with volumes from British Columbia.

The 305-kilometre conduit will connect the promising shale-rich Montney region to TransCanada’s main NOVA Gas Transmission system. While it may seem ironic that some producers are against a new pipeline, their primary concern is that TransCanada is gathering more supplies from new production centres without expanding the existing system. For its part, TransCanada says other initiatives are under way to expand the infrastructure.

AECO prices, Alberta natural gas prices, measured as the AECO benchmark, plunged into negative territory for the first time ever last year amid a glut of natural gas supply and as TransCanada performed maintenance on its existing system, at the same time changing its policies to access its gas pipeline network in the province.

Now some natural gas producers believe that if the North Montney pipeline project proceeds, natural gas from British Columbia that had once been committed to now-cancelled LNG export projects will flood the Alberta market, further depressing AECO prices.

In an NEB filing, TransCanada subsidiary Nova Gas Transmission Ltd. (NGTL) said it had contracted 1.485 billion cubic feet of natural gas from 11 companies, including Progress Energy Canada Ltd., which plans to move its gas out of north-eastern B.C. after its Malaysian parent company Petronas Bhd. and partners abandoned their LNG project on the West Coast. Progress alone had contracted 700 million cubic feet of that capacity.

Natural gas producers fume as TransCanada limits access to key pipeline

Bennett Jones partner Lawrence Smith, acting on behalf of ATCO Gas and Pipelines Ltd., asked TransCanada executives whether the company had built enough capacity throughout its natural gas system in Alberta to handle the additional volumes.

“It’s the core of this issue about downstream bottlenecks and the responsibility for the related costs,” Smith said. ATCO has delivery contracts with TransCanada to take gas produced in Western Canada and ship it to its utility customers.

Only 780 million cubic feet per day were associated with the North Montney mainline project when it was originally proposed and approved back in 2013.

“So if those volumes – that 1.485 bcfd of incremental gas over four years – comes on and no incremental capacity is built, who gets bumped off the system? Why do (the companies that committed to this project) get a prior, or higher, acquired right because they were part of a proposed project?” Smith asked.

The Financial Post has learned that multiple natural gas producers, including Jupiter Resources Inc. and Peyto Exploration and Development Corp., are concerned about the project’s effect on Alberta gas prices. Rival Enbridge Inc.’s West Coast Energy Inc. and Puget Sound Energy are among the companies cross-examining TransCanada at the hearings which are expected to last five days.

Patrick Keys, TransCanada vice-president, Canadian gas pipelines, countered that the company was continuing to expand its network and is currently calling for bids to expand its gas pipeline network along between north-western Alberta and an export point in the province’s southeast.

Keys said the company is also planning other expansions – which were not the subject of Monday’s cross-examination – that would allow natural gas producers to move their gas from northern Alberta across the market to key export points.

“We don’t want to overbuild the mainline portions of our system,” Keys said, adding that overbuilding the system would add costs for its customers, which would be recovered through higher tolls.

However, he did note that there was an excess of natural gas supply in Western Canada right now that is creating competition for space on TransCanada gas pipeline network.

“There’s actually competition on the supply side for the market,” Keys said, noting the competition was beneficial for gas consumers “because it probably drives the price down at the end of the day when there is an overhang of supply competing for a limited market.”

The oversupply of natural gas in Alberta has ignited a major division within the oilpatch, with some companies blaming TransCanada for disconnecting AECO price from other North American benchmarks.

“The viability of the western Canadian natural gas sector is in jeopardy,” Jupiter Resources Inc. chief executive Simon Bregazzi wrote in a letter to the NEB last week, which sharply criticized TransCanada for bumping shippers off its system when signing new contracts.

“TransCanada’s approach to managing the resultant bottlenecks has wrought chaos in the AECO gas market, in essence disconnecting it from the North American market causing unnecessary economic distress for many Western Canadian producers,” Bregazzi said. “All of this occurred before factoring in the consequences of introducing North Montney into the already crowded NGTL system.”

Other producers have also submitted letters to the NEB expressing their frustrations.

“In our opinion, (TransCanada) needs to immediately debottleneck the NOVA system,” Bellatrix Exploration Ltd. vice-president, marketing Robert Lee wrote in a letter. He added that TransCanada “continues to connect new receipt service in Alberta without taking care to also increase the ability for these new gas supplies to be delivered off the NOVA system.”

From the Financial Post – Oct. 12, 2017

Natural Gas Prices are so Bad in Alberta Producers are having to Pay Customers to Yake It

CALGARY – Pipeline outages and maintenance work have caused volatile swings in Alberta natural gas prices, even pushing them into negative territory recent days.

In the past few weeks, Alberta’s benchmark AECO prices have fallen into negative territory – meaning producers have had to pay customers to take their gas – on multiple days. Data from Gas Alberta Inc. show AECO prices fell to -7 cents from Oct. 5 through Oct. 9, and were also negative on Sept. 25.

“We’ve never seen negative prices before this year,” GMP FirstEnergy analyst Martin King said, adding that he’s been following AECO gas prices since 1993.

In recent years, prices for natural gas by-products such as propane have fallen below zero, but the commodity itself has not fallen into negative territory in Alberta.

On Thursday morning, the price of natural gas in the province jumped to $1.81 per gigajoule but King warned, “It could crash again tomorrow.”

“The volatility has been ongoing for quite a few weeks and a lot of it is related, directly and indirectly, to field maintenance TransCanada has been doing on the Alberta system,” King said, adding that service has been interrupted in order to complete maintenance on natural gas gathering and transmission pipelines.

TransCanada Corp., which owns and operates the largest natural gas gathering and transmission system in the province, has been working to expand its system ahead of new service agreements coming into effect on Nov. 1, which marks the beginning of the winter heating season.

“We are very sensitive to these impacts as we carry out these normal maintenance and construction activities,” TransCanada spokesperson Shawn Howard said in an email.

He said TransCanada has been carrying out expansion work on its systems but has communicated its plans “early and often” to customers “to ensure that we can all minimize the impact to production and natural gas flowing on our system.”

Natural gas producers, meanwhile, have been filling up their storage options in Alberta and elsewhere in preparation for the winter season, when utilities burn more of the commodity to heat homes across the continent.

As a result of the volatility in the Alberta market, Kelt Exploration Ltd. announced last week it would temporarily shut in 21.4 million cubic feet of daily natural gas production.

It also plans to further diversify its market exposure beginning Nov. 1, sending more gas to Ontario on TransCanada’s mainline, the West Coast and U.S. markets. Kelt did not respond to a request for comment Thursday.

The extreme price swings have forced Alberta producers to make a difficult choice between selling their gas for nothing, or less than nothing, and shutting in their wells, Auspice Capital founder and chief investment officer Tim Pickering said.

“It’s a lack of infrastructure, it’s transportation restrictions, there’s been (pipeline) maintenance, there’s been all sorts of issues that have culminated at a time when we have a lot of gas, and there’s no other choice,” Pickering said.

American natural gas producers, meanwhile, have enjoyed significantly higher prices. NYMEX natural gas prices have traded above US$2.80 per million British thermal units for over a month and moved up 3 per cent to US$2.99 per mmBtu in mid-day Thursday trading.

U.S. gas producers have been able to expand their export options – with new liquefied natural gas export projects, new export pipelines to Mexico – while Canadian producers have limited pipeline options, Pickering said.

“At the end of the day, we’re a supply basin and we need a pipe for the gas to go into.”




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