TransCanada’s Montney Mainline Faces Stiff Opposition
An array of producers, competing pipelines and the Alberta government lined up February 13 against TransCanada’s Nova Gas Transmission Limited (NGTL) and its plans to use pipeline capacity previously designed to serve LNG markets to instead move more gas into North American markets.
In written final arguments to the National Energy Board (NEB) hearing NGTL’s North Montney Mainline Lateral (NMML) variance application, most of the groups opposing the project said it would push substantially more gas into an already over-supplied Alberta market, which is already experiencing historically low prices.
NMML was originally designed as a collector system to move about 700mn ft3/day of gas to the now-cancelled Pacific Northwest LNG project on BC’s west coast. The variance application seeks to increase the throughput of the project to close to 1.5bn ft3/day and push that gas into the AECO/Nova Inventory Transfer (NIT) market in Alberta, where, its supporters say, it could access markets in eastern Canada and the US.
Tolls for the new NMML service would be rolled in to NGTL’s existing tolls, even though only 11 producers would have access to the capacity. Essentially, critics said, NMML service would be offered at zero cost, subsidized by all users of the NGTL system.
That, the Alberta Department of Energy (ADOE) said, would negatively impact the province’s royalties and taxes, hamper timely access to markets by producers and affect the employment of Albertans.
“The ADOE does not consider that the North Montney extension supply of 1.485bn ft3/day entering the NGTL system…paying $22mn per year as forecast meets the cost causality test,” the department said in its written argument. “This contract volume would consist of approximately 12.5% of the NGTL total annual volume, but contribute less than 1.5% of the existing system’s approximate $1.9bn revenue requirement.”
Three key Deep Basin producers (the PMC Group), meanwhile, said the NMML variance application focuses on matters that are critically important to the continued health of the Canadian gas industry, which “currently suffers from unprecedented price volatility and a sustained period of low commodity pricing.”
“The PMC Group believes the additional volumes of gas proposed to be transported by the facilities are likely to exacerbate service interruptions on the NGTL system, flood the AECO market with additional gas volumes for which there is not an adequate market absent significant upgrades to the current NGTL system and contribute to increased price instability and low prices for the AECO market,” the producer group said. “The new volumes will contribute to an oversupply of gas that cannot exit the basin and access new markets due to constraints on the current NGTL system. Such an outcome would not accord with the orderly development of Canada's natural gas resources and would be contrary to the public interest.”
Members of the group – Peyto Exploration & Development, Modern Resources and Canlin Resources – suggested that the NEB should, if it decides to approve the variance application, condition its approval such that NGTL is prohibited from starting construction until it has developed matching downstream capacity of 1.485bn ft3/day.
“This would allow all FT-R (firm transportation-receipt) contracts to flow on an unconstrained basis, facilitating NGTL system egress and providing the additional market access needed to accommodate any incremental gas volumes that the facilities will introduce to the NGTL system.”
Enbridge-owned Spectra Energy, which operates the competing Westcoast Transmission system, sided with the Alberta government, the PMC group and others opposed to the rolled-in tolling methodology proposed by NGTL. Only those shippers using the variance facilities, it argued, would benefit from the additional transportation capacity. Others on the system would not use it, but would end up paying for it.
“There is no basis for the board to approve rolled-in tolling for the North Montney Mainline and tolerate the excessive cross-subsidization that would result from it,” Spectra said, adding that more than 1bn ft3/day of capacity on Westcoast’s T-North system – which it said serves the same resources as those contemplated by NMML – “would become de-contracted and underutilized” if the NMML facilities and rolled-in tolls are approved.
“A stand-alone toll on the North Montney Mainline would not be punitive, or discriminatory, or anti-competitive,” Spectra said. “It would provide a direct link between the tolls and the cost of the proposed facilities, such that the tolls would be aligned with the cost causation principle.”