TransCanada head not content with static share of gas transportation

Jim Stott
Calgary Correspondent

President and CEO Hal Kvisle plans to make TransCanada PipeLines Ltd. (TCPL) the top gas pipeline and power generation company in the Northern Tier of North America.

Kvisle defines the Northern Tier as anywhere north of a line between San Francisco and New York.

He says the Calgary-based TCPL is already dominant on the pipeline side with a network of more than 23,600 miles of pipe linking western Canada with gas markets in central Canada and the US. But he says the company has a long way to go on the power generation side, which now accounts for 20% of its business.

"We're already the number one pipeline company in the Northern Tier. Several US companies have significant assets in New York state, New England, Pennsylvania and other places. But I don't think anybody in total would have as much pipeline or gas transport infrastructure as we do," Kvisle says.

"The growth challenge for us is on the power side where we are frankly a nobody in Northern Tier power today in a relative sense. The power business is so huge that we could grow our business ten-fold and still not be the largest power company in the Northern Tier."

The company has tripled its power generation capacity in the last 2 1/2 years, including a number of large-scale projects in Alberta.

Kvisle says TCPL is actively looking for growth opportunities and the company has "the healthiest balance sheet" in years. He says TCPL will be a substantially larger company 5 years from now and it will not necessarily be confined to the Northern Tier. He says potential for growth will come both through project investment and acquisitions. Kvisle says the collapse of Enron is one situation that is worth examining.

"So many companies with their credit ratings under pressure will either be looking to sell assets to restore the balance sheet or perhaps looking for a corporate merger partner.

"We think both of those open up opportunities for TransCanada. These are not necessarily opportunities we are going to do, but we will be focused on them and keeping our eyes open."

On the pipeline side, Kvisle says there is more than enough pipeline capacity from Alberta to gas customers, although the company has responded to a request from shippers that it develop more pipe capacity to California.

"We see relatively little need in the next couple of years for long-haul capacity out of Alberta. What is always required, though, is new capacity to accommodate new gas coming on within Alberta.

"As an industry, we bring on 3 bcfd of new gas every year just to offset decline. A lot of that new gas comes on from locations that are different from the old places."

The TCPL executive says his company will move most of the new gas from northeastern British Columbia's hot Ladyfern play, which is producing more than 500 MMcfd. But he says there will be a lot more new gas coming out of Alberta than BC, because it's a much bigger playing field.

The biggest new playing field of all may be the pipeline infrastructure required to bring Arctic gas from Alaska and Canada's Mackenzie Delta to southern markets.

TCPL, along with Foothills Pipe Lines Ltd., Westcoast Energy Inc., and six US companies, will make a proposal within a few weeks to Alaska gas producers for a pipeline from Prudhoe Bay field following the oil pipeline and then the Alaska Highway to connections in northern Alberta. Foothills, a joint venture of TCPL and Westcoast, already holds regulatory permits for a pipeline.

Kvisle says the proposal will be for 42-in. or 48-in. line with an initial capacity of about 2.5 bcfd and a price tag of $8 billion (US).

He says the gas would be moved through TCPL's Nova pipeline system to Empress, Alta., where liquids would be stripped before the gas was shipped to the US Midwest.

The cost of the line would be about half that of several alternatives examined by the Alaska producers and, so far, rejected as uneconomic.

The TCPL executive says the group's proposal is an incremental approach under which a commitment could be made to build a line and do the necessary engineering. Line capacity could then be expanded in stages as gas volumes grow.

Kvisle estimates the cost of getting gas to Alberta at about $7 billion and an additional $1 billion to expand Alberta infrastructure. He says, however, if Alaska gas flowed at an initial rate of 3 bcfd, and there was some decline in current Alberta production, existing pipelines would have surplus capacity to handle that gas.

An Arctic pipeline would increase the close energy integration that already exists between Canada and the US.

Kvisle, whose company is the largest foreign shipper of gas to the US, says it benefits Canada to be next door to such a huge and efficient energy consumer.

"There is already coordination of all marketing and trading activities in Canada and the US. The Canadian and US energy economies are virtually integrated today -- the one exception being electric power," Kvisle says.

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