TransCanada Corp. TRP-T is locked in difficult talks with some of Canada’s largest energy companies as it tries to revitalize one of its most important pipelines.
The company is engaged in a controversial bid to trim the cost of sending natural gas across the country, while at the same time raising transportation tolls in places such as Western Canada, where demand for its product is stronger. Some customers like the idea; others, including EnCana Corp., don’t.
“This is an enormous asset for them,” said Chad Friess, an analyst with UBS Securities.
But the Canadian Mainline is in trouble. Alberta’s natural gas industry has seen precipitous drops in production as a result of weak prices and staggering new gas finds in new shale plays in Texas, Pennsylvania and British Columbia. Alberta gas output is down 1.7 billion cubic feet a year since 2007, a 13-per-cent decline.
The Mainline has seen volumes fall from more than seven billion cubic feet a day in the late 1990s to about four billion today; it’s down 1.5 billion cubic feet in the past few years alone. That precipitous drop has forced TransCanada to raise the cost of shipping what gas is left.
Last year, it increased its transportation tolls by 38 per cent, prompting Canadian Natural Resources Ltd. to warn that rising pipeline costs could drive away even more gas from the pipe, creating a “death spiral” that might jeopardize the pipeline itself.
Now, TransCanada is speaking with some of the largest players in the industry about a new plan that would see it alter the way it collects some of its primary revenues. It wants to trim the cost of shipping gas through its Mainline pipe, rather than pushing for another toll hike that could even more seriously hurt companies already starved for profit on natural gas.
“We need to bring our [Mainline] tolls down and there’s various methods by which we can do that,” TransCanada chief executive officer Russ Girling said in an interview. “We need to move our costs from those places where we’re not moving as much gas to those places where we are.”
