As the National Energy Board prepares for what some are calling the most important pipeline deliberation in its history, those battling over natural gas transportation costs are questioning the need for a pivotal piece of Canadian energy infrastructure.
The fight over TransCanada Corp.'s Mainline has been brewing for years. Now, with the energy regulator about to make important decisions on its future, users of the pipe are urging writedowns and shutdowns to pull it out of a "death spiral." The Canadian Association of Petroleum Producers calls the Mainline toll issue "the most important and most complex" that the NEB "has ever had to consider since it began regulating tolls" in 1970.
There is little doubt about the gravity of the situation.
The mounting cost of sending Western gas to Eastern markets along the Mainline, an Alberta-to-Quebec network of pipe that has served as a major cross-country energy link for more than half a century, is now posing a serious threat.
The Mainline delivers much of the gas that fuels Central and Eastern North America's homes and electrical generating stations. But a surge in eastern U.S. natural gas supplies, as well as weak gas prices that have led to a decline in Western Canadian production, have left the Mainline running, on average, half-empty.
The result has been rapidly rising tolls. This year alone, TransCanada has proposed raising the cost of shipping gas by 50 per cent.
TransCanada has proposed a radical pricing adjustment that would reduce Mainline tolls and shift them, instead, to its networks of gathering and distribution pipes in Alberta and Ontario. The company has said it expects its new plan will result in the Mainline being filled in coming years, and has strongly resisted any move to decrease the size of the pipeline.
"The fact that the Mainline is not used at capacity every day of the year does not mean that the pipeline is not needed. On the contrary, winter heating markets would not be served without the supplies the Mainline brings," Karl Johannson, TransCanada's senior vice-president of Canadian and eastern U.S. pipelines, wrote in an e-mailed statement. And, he added, "the risk of a writedown is not one TransCanada has historically been compensated for."
But those that depend on the Mainline are working to avoid higher tolls by transferring the pain to TransCanada. They are asking the NEB to consider whether TransCanada should temporarily or permanently shut down parts of the system, or mark down its value.
The Ontario-based Industrial Gas Users Association, for example, is asking the National Energy Board to look at options that include TransCanada "setting aside or permanently removing underutilized or unused assets from service (or writing them off or down in TCPL's financial statements)."
The association calls current tolls "out of control" and warns that "it will require a great deal of effort and wisdom in order to find appropriate and fair solutions in an attempt to unravel the mess that TCPL's tolls have become."
Others suggest that the NEB should examine TransCanada's historical profits to determine whether the company should "more directly bear a portion of the current risks confronting the Mainline."
Because the Mainline is regulated, TransCanada is largely assured of a certain return. That has galled producers in recent years, when times have been tough. But it has also meant that TransCanada has sacrificed greater profits in good times.
Still, there is little doubt that times are changing. One gas marketing firm, Tenaska Marketing Canada, for example, urges the NEB to consider the "ability of the Mainline to compete effectively with existing and new U.S. pipelines."
Nexen Inc. also "has serious concerns" about TransCanada's proposal, which would boost gas transportation costs in Alberta by about 40 per cent. It warns of "the significant impact this will have on Nexen's continuing operations," writes Debbie White, the company's regulatory manager in natural gas.
The complexity of the matter is expected to create a lengthy regulatory process. Union Gas, for example, suggests the written back-and-forth could last until late May, with a hearing not starting until mid-June.