Canadian gas pipeline competition heating

Canada's natural gas pipeline operators are moving to face competition from rival projects in a battle that promises toll cuts for export shippers.

NOVA Gas Transmission Ltd., Calgary, the main gas pipeline operator in Alberta to export points, is preparing plans to change its toll system in Alberta.

TransCanada PipeLines Ltd., Calgary, which operates the major pipelines to export markets in the U.S. and eastern Canada, also says it will increase deliveries and cut costs for shippers in 1997.

NOVA Vice Pres. Russ Wells told the North American Gas Strategies Conference in Calgary that the company will have to change its rates to be competitive, if rival projects are approved. The conference, organized by Ziff Energy Group, Calgary, also heard project outlines from Alliance Pipeline group and the Palliser Pipeline Project, which are planning competing lines in Alberta to export points.

NOVA's challenge

NOVA currently moves most gas in Alberta and operates under a government-approved postage stamp system of tolls under which shippers pay the same price per unit regardless of distance.

Wells said NOVA needs "variable alternatives" if other pipelines offering lower rates are approved. The company has not released details of possible tolling alternatives.

The proposed $3.6 billion (Canadian), 1,864-mile Alliance pipeline would move 1.25 bcfd of gas from Northeast British Columbia via Alberta to Chicago. Alliance is now planning meetings with residents along its proposed route in western Canada and in northern U.S. states.

Alliance has also completed an open season with shippers and expects firm commitments from shippers totaling 1.25 bcfd. It expects approval of regulatory filings shortly in Canada and the U.S.

The Palliser pipeline, backed by PanCanadian Petroleum Ltd., Calgary, would operate a $350 million, 149-mile, 1 bcfd line in Alberta into Saskatchewan. Palliser says it can offer rates as much as 50% lower than NOVA.

Palliser has applied to Canada's National Energy Board for approval to begin construction in 1998.

Both the Palliser and Alliance lines pose challenges to NOVA and the existing postage stamp toll policy, which is designed to encourage gas development in all areas of Alberta.

In another move aimed at Palliser, NOVA is seeking regulatory approval for a $99 million, large-diameter expansion of its system next summer. It had originally planned the expansion for summer 1998. The 57-mile line from northwest of Calgary to the Saskatchewan border at Empress would have a capacity of 1 bcfd, the same as Palliser's. NOVA said it would not add the cost of the construction to its tolls until 1998.

Palliser said producers will have an additional 3 bcfd of production coming on stream in several years, and additional pipeline capacity will be needed.

TransCanada's strategy

TransCanada expects to increase deliveries and reduce costs in 1997 as part of a 4-year incentive settlement program.

Senior Vice Pres. Bob Reid said he could not make specific forecasts, but eastern zone tolls could be reduced to 85¢ (Canadian)/gigajoule (80.75¢/ MMBTU) from a current rate of 90.7¢/GJ (86.17¢/MMBTU).

Under the incentive deal, a $31.6 million shippers' share of projected discretionary revenues earned this year will be credited to the overall cost of services.

TransCanada also expects toll savings from increased deliveries to 2.46 tcf in 1997 from 2.43 tcf this year.