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Latest Headlines
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Nov 8, 2009 9:01:00 AM MST
Producers to feel the pinch from higher tolls, but effect unclear on consumers (TransCanada)
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CALGARY _ The cost of transporting natural gas eastward from Alberta is expected to rise significantly next year for producers, but that does not necessarily mean consumers will notice a difference on their home-heating bills.
"It would be a reasonable expectation that if shippers and the energy companies are paying more, they´ll probably try and recoup those costs through the consumer," said Tara O´Donovan, a spokeswoman for the National Energy Board, the federal regulator tasked with approving pipeline tolls.
"But depending on the scenario involved, it´s not always the case."
Natural gas is the predominant home-heating fuel throughout most of Canada, though some parts of the Maritimes still rely on heating oil.
TransCanada Corp. (TSX:TRP) ships about nine billion cubic feet of natural gas per day along its Mainline system, which stretches more than 14,000 kilometres from Alberta to the Quebec-Vermont border.
The Calgary-based company charges producers a toll for every unit of natural gas that passes through the pipeline.
That cost is currently $1.19 per gigajoule, but TransCanada warns that in 2010 that price could rise to between $1.65 and $1.90 per gigajoule.
TransCanada has not hammered out a final price yet, but is in discussions with its customers, who will no doubt feel the pinch.
What´s less clear-cut is to what extent the increase will trickle its way down to the other end of the chain, where distributors purchase natural gas and then sell it to consumers.
A lot depends on what sort of contract a shipper has with the natural gas distributor at the other end, said O´Donovan.
"If there´s a fixed price contract in place, then transportation costs may not impact the cost that the consumer pays," she said.
TransCanada is raising its tolls because the volumes of natural gas being fed into the system have ped more than expected this year, and are expected to keep ping next year.
Hit by dismal commodity prices and a generally bleak economic environment, many companies have curbed production until it makes economic sense to start drilling again.
"Production in Western Canada is down by about one billion to 1.5 billion cubic feet a day year over year. As a result, our 2010 tolls will rise considerably," TransCanada chief operating officer Russ Girling told analysts last week.
"We´ll deal with that in our negotiations with our shippers. We´ll try to mitigate it as much as possible."
One possibility is spreading the increased cost over a number of years rather than unleashing it on producers in one fell swoop.
TransCanada said the lower volumes, and the resulting higher tolls, will likely be a short-term phenomenon, as natural gas is expected to start flowing out of emerging shale gas plays in northeastern British Columbia over the next few years.
"We see that gas volume coming on and, I guess, offsetting the decline of conventional here in Alberta sometime in ... 2011," said Girling.
Alberta´s natural gas production has been ping between eight and 10 per cent per year over the past few years, said Gary Leach, president of the Small Explorers and Producers Association of Canada.
"We´ve been waiting for the shoe to . It´s something that certainly we were aware was a possibility," he said. "It´s not unexpected, but it´s unhappy news."
The vast majority of companies that Leach´s group represents are geared toward natural gas.
"The proposed increase in the tolls is quite significant and of course, at a time when producers are fighting to hang on to profit margins, ... it´s going to be very challenging," he said.
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