Canadian producers, pipeliners to cooperate

Market forces continue to rapidly push Canada's natural gas pipeline industry towards greater competition and a new relationship with producers. In separate developments: Major pipeline companies and producer groups have announced a new agreement to promote a competitive environment, more customer choice, and an alignment of interests in the Western Canada basin.

April 27, 1998

4 min read

Market forces continue to rapidly push Canada's natural gas pipeline industry towards greater competition and a new relationship with producers.

In separate developments:

Major pipeline companies and producer groups have announced a new agreement to promote a competitive environment, more customer choice, and an alignment of interests in the Western Canada basin.
NOVA Corp., which operates Alberta's major gas pipeline system, says it will seek regulatory approval for a distance-sensitive tolling system instead of the postage stamp pricing that has been mandated by the Alberta government since 1980.
The Alliance consortium planning a $3.7 billion (Canadian) gas and liquids line from British Columbia to Chicago, said it has signed agreements with suppliers and contractors in Canada and the U.S. worth more than $1.4 billion.
NOVA and TransCanada PipeLines Ltd., both of Calgary, reported they have received key U.S. regulatory approvals for a planned merger of the two companies.

The agreement

The pipeline's-producer agreement was ratified by TransCanada, NOVA, the Canadian Association of Petroleum Producers (CAPP), and the Small Explorers & Producers Association of Canada (Sepac).

It is expected to soften opposition by existing lines to the Alliance project and to cut producer opposition to the proposed NOVA/TransCanada merger, which some considered monopolistic.

CAPP president David Manning said the deal shows the established pipeline companies have finally embraced competition. He said the agreement offers opportunities for the Western basin, in terms of efficiency and innovation.

TransCanada CEO George Watson said the agreement is a win-win situation that brings the gas industry and the Western Canada basin together.

Watson said there are three guiding principles to the agreement by participants:

Support for competition and greater customer choice.
More export pipeline capacity that is timely, safe, and cost-effective, from new and existing pipelines.
Regulatory changes to ensure a level playing field for pipelines.

Dennis Cornelson, head of the Alliance Pipeline Project, still before the National Energy Board, said there is potential to build on the agreement and move forward. He said the deal breaks a logjam in terms of the paradigm under which the industry will operate.

NOVA CEO J.E. (Ted) Newell said he believes producers will now feel more comfortable with the planned NOVA/TransCanada merger. He said the two companies will also receive support from producers for the regulatory changes they need to function effectively in an evolving competitive environment.

A steering committee of pipeline and producer executives has been set up to ensure timely implementation of the agreement.

Other developments

NOVA and TransCanada received approvals from the U.S. Federal Energy Regulatory Commission for their planned merger. They also filed with the U.S. Federal Trade Commission and the Department of Justice and can now proceed without further review under antitrust legislation.

The merger still awaits a number of approvals in Canada.

NOVA said it wants tolling changes so that shippers will be charged according to the distance their gas travels, the size of pipe it is in, and the length of contract commitment.

Toll changes must be approved by the Alberta Energy and Utilities Board. The postage stamp system that has been in effect for 20 years is designed to promote gas exploration and production in more remote areas.

Some producers with operations in northern Alberta are expected to oppose the proposed change. NOVA said its proposed tolling changes come after a multi-party industry task force examined tolling in 1997.

Meanwhile, the Alliance pipeline group announced major commitments to U.S. and Canadian mainline contractors and suppliers (OGJ, Apr. 13, 1998, p. 38). The group said the procurement measures will allow its system to be in operation by the second half of 2000.

Seventeen mainline compressor packages will be supplied by Nuovo Pignone, an independent company 90% equity owned by General Electric Co. The pipeline consortium said it is now firming up orders for the balance of its pipe needs, its mainline block and station valves, and other mainline requirements.