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Workers prepare to change drilling pipes on the rotary table of a natural gas drilling rig near Towanda, Pennsylvania, February 3, 2010. Energy companies drilling for natural gas in Pennsylvania�s Marcellus Shale would have to pay a wellhead tax under a proposal unveiled on Tuesday by Gov. Ed Rendell. Rendell wants to charge drillers 5 percent of the value of gas at the wellhead plus 4.7 cents per 1,000 cubic feet of gas taken from the ground, starting July 1. The plan would raise $160.7 million in the first year and $1.8 billion over five years. Photo taken February 3. REUTERS/Tim Shaffer (UNITED STATES - Tags: ENERGY BUSINESS EMPLOYMENT)


Canadian pipeline companies are considering requests from U.S. producers to reverse the flow of their export lines to bring natural gas from the prolific Marcellus shale into Ontario, displacing some Alberta suppliers who have dominated the Central Canadian market for half a century.

TransCanada Corp. and Chatham, Ont.-based Union Gas Ltd. have issued "open season" calls to determine the interest of Marcellus producers in supplying natural gas to the Ontario market from Pennsylvania and West Virginia.

The companies, together with New York-based Empire Pipeline, would use existing pipelines that now move Western Canadian gas to Southern Ontario and the U.S. Northeast. "The Marcellus shale is a game changer in terms of our markets and how we serve them," said Andrea Stass, spokeswoman for Union Gas, a subsidiary of U.S. giant Spectra Energy Corp.

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Union Gas's so-called "open season" will gauge interest among shippers to move gas from the border at the Niagara River, through a TransCanada line and then westward to its Dawn hub near Sarnia, where Union has major natural gas storage facilities.

TransCanada vice-president Steve Pohlod said the company is responding to requests from Marcellus producers that want to supply the Ontario market. But, he added, it is too early to say whether there is enough interest to justify reconfiguring the export pipeline.

"We're holding an open season to determine the interest and the volumes that parties may be interested in committing - and where they may be interested in transporting gas to," he said.

Ontario consumes an average of roughly 2.5 billion cubic feet per day, though demand swings dramatically according to the season. The vast majority of Ontario gas supply comes from Alberta and Saskatchewan through the TransCanada main west-to-east pipeline, as well as routes through the United States.

The massive Marcellus structure extends through the Appalachian region from West Virginia, through Pennsylvania and New York. As a result of advances in drilling techniques, the industry has dramatically reduced the cost of producing gas from the deep pools trapped in tight, shale-rock formations.

Estimates of potential production from the Marcellus formation range wildly, from a minimum 2.5-billion cubic feet to up to 10 bcf per day by 2020.

The development of huge shale gas structures is radically changing the North American market for natural gas, said Peter Tertzakian, chief energy economist with Calgary-based ARC Financial Corp.

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U.S. pipeline companies are proposing major expansions to deliver Marcellus gas into the East Coast markets to compete with Canadian production, he said.

"This is the first major export proposal to pit Pennsylvania gas head-to-head with Western Canadian gas on Canadian soil," he said.

In 1958, Prime Minister John Diefenbaker supported the construction of the 3,500-kilometre TransCanada line from Alberta to Central Canada in order to ensure the development of western resources and provide secure supplies for Central Canada.

Until recently, security of supply remained a concern for eastern consumers. Now, production is increasing among a variety of sources,

In addition to the Marcellus gas, eastern consumers are also seeing new supply from the Canaport liquefied natural gas terminal, located in Saint John, N.B., and owned by Irving Oil Ltd. and Spain's Repsol YPF SA.

As well, there is growing excitement about the Utica shale gas play in Quebec, where Calgary's Talisman Energy Inc. has been reporting promising results from its drilling program.

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As Canadian producers see their grip on eastern markets loosened, Mr. Tertzakian said they will need to refocus on western markets. He suggested production from large shale gas formations in northeastern British Columbia could compete with high-cost conventional gas in the western U.S.

"It's all very competitive and the gold medal winners will be the ones who have the mindset to bring the gas to market most efficiently at the lowest cost," he said.

Analyst Richard Zarzeczny, president of energy information and consulting firm Canadian Enerdata Ltd., said loss of market share in Ontario could undermine the economics of shipping western gas to eastern markets. Declining volumes would drive up pipeline tolls, which would further encourage consumers to turn to Marcellus sources.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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