TransCanada natgas Mainline no substitute for Asian markets


Reuters

By Ethan LouCALGARY, Alberta, March 20 (Reuters) - Transcanada Corp's
<TRP.TO> move to lower tolls for its Mainline pipe raises the
competitiveness of Canadian natural gas for the near future, but
access to Asian markets is the key to the long-term survival
of the landlocked industry, industry insiders say.
    Canada'sC$45-billion ($34 billion) gas industry relies
solely on North American demand and domestic producers have been
increasingly squeezed from the lucrative eastern market by U.S.
rivals who have lower transportation costs.
    TransCanada said last week it will seek regulatory approval
for a discount in tolls of nearly 50 percent for western
Canadian producers to use the Mainline to send their output to
markets in the east, a move that had broad industry support.
[nL2N1GQ0LY]
    But the North American market will get crowded in the near
future, with flat demand and increasing U.S. output, according
to a report released on Monday by the Conference Board of Canada
think tank. It painted a bleak outlook for the industry,
projecting U.S. output to eat into Canadian market share.
    The think-tank warns that U.S. pipelines including Energy
Transfer Partners LP's <ETP.N> Rover that target the same areas
Mainline serves does not bode well for Canadian gas.
    "This is a worrisome development for Canadian producers,"
according to the report.
    Even with the Mainline, Canadian producers, whose product
trades at a discount, still need to look to new markets in Asia,
industry executives said.
    Canadian Natural Resources Ltd <CNQ.TO>, which will be a
shipper on the Mainline, said while the lower toll is a
"positive step," the company still supports accessing new
markets.
    TransCanada's Mainline "is kind of the last pipe we have
that has unutilized space," said Stuart Mueller, manager of
natural gas transportation and supply at the Canadian
Association of Petroleum industry lobby group.
    According to the Natural Energy Board regulator, the
Mainline can move about 3.6 million to 6.9 million gigajoules of
gas per day on different parts of the system, but utilization
rate has been 60 percent at most.
    While North American demand exists, further growth for
Canadian producers will need to come via accessing the offshore
market through liquefied natural gas, Mueller said.
    Natural gas is usually turned into liquid at special
terminals when shipped across oceans. Canada has about 20 such
terminals proposed, most of them on the west coast with the
Asian market in mind, but none are built yet.
    If just "several strategic terminals" get built, Canada can
become a "cost-competitive, secure and stable supplier" of gas
globally, according to a 2016 internal government memo seen by
Reuters under access-to-information laws.
    The Natural Resources Canada federal department said in a
statement declining exports to the United States highlights the
need for LNG terminals, even with lower Mainline tolls.
    LNG terminals coming online may not bode well for future
shipping on TransCanada's Mainline, said Dulles Wang, analyst at
Wood Mackenzie.
    Mainline's terms allow shippers to exit after five years on
the condition they pay higher tolls for two years before doing
so.
    "If we are able to secure the Asian markets in the next five
to 10 years, then we might see some contracting just being
canceled," Wang said.
    TransCanada spokesman Shawn Howard said in a statement the
export terminals do not diminish the need to serve the North
American market.
    ($1 = 1.3361 Canadian dollars)

 (Reporting by Ethan Lou; Editing by Marguerita Choy)
 ((Ethan.Lou@thomsonreuters.com; +1-403-531-1634; Reuters
Messaging: ethan.lou.thomsonreuters.com@reuters.net))

Keywords: TRANSCANADA GAS/TOLLS (PIX)



This article appears in: Stocks , World Markets , Stocks
Referenced Symbols: ETP


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