Canada's National Energy Board has banned discount gas export deals with California and supported Canadian producer arguments for long term contracts at stable prices.
The ruling is seen as a victory by Canadian producers in a battle with the California Public Utilities Commission (CPUC) over gas exports and prices. It benefits Canadian producers who are members of a supply pool that provides contract gas to California (OGJ, June 29, Newsletter).
There is a $1 billion/year gas export trade flowing from Alberta to California. Several projects are under way to expand pipeline capacity and increase exports.
CANADIAN VIEW
NEB was critical in a strongly worded ruling of efforts by CPUC to open the California market to more spot gas sales. It said CPUC policies are detrimental to the Canadian public interest.
The board and Alberta early this year imposed interim restrictions on spot export sales (OGJ, Mar. 2, p. 56).
NEB said it was "dismayed at the adverse effects on Canada" of actions by CPUC to reduce gas prices by scrapping existing long term purchase contracts this fall. The board vowed to protect contracts between California customers and a supply pool of 190 Alberta producers.
Alberta gas is sold to Alberta & Southern Gas Co. and moved by a Pacific Gas Transmission Co. (PGT) pipeline to California markets. PGT is a unit of Pacific Gas & Electric Co., San Francisco.
Alberta producers have filed lawsuits worth more than $400 million in Alberta courts alleging lost revenues because buyers have not taken contract volumes.
NEB rejected claims by California consumers that present contracts represent a monopolistic supply cartel.
The board added a prohibition to gas export licenses that would ban competition by spot dealers against the existing supply pool. It also suspended delivery service for discount dealers on the Alberta Natural Gas Co. pipeline system, which delivers gas to export border points.
The board also said export applicants normally must have enough gas in the ground to meet their full contracts. In addition, it said, yearly productive capacity of established reserves must be adequate to meet proposed export volume during most of the contract term.
The policies were included in revisions to export application procedures.
NEB said controls will remain in effect until Alberta, California, and companies involved in the gas trade negotiate an orderly transition to a more open market.
CPUC is reviewing the ruling.
CANADIAN REACTION
Dennis Prince, gas export manager for the Independent Petroleum Association of Canada, said he was disappointed that it was necessary for NEB to take such harsh action, "but it was necessary."
Canadian Petroleum Association gas manager Cal Buchanan said CPA was very pleased with the NEB ruling. CPA had asked the board to review gas export policies.
Alberta Energy Minister Rick Orman praised the NEB ruling. He said it protects the principle of sanctity of contracts. He has invited CPUC Pres. Daniel Fessler to begin new talks.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
