TransCanada moves to halt ‘death spiral’ in gas shipments (G&M)
NATHAN VANDERKLIPPE
Calgary— From Friday's Globe and Mail
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Last updated
TransCanada (TRP-T37.45----%) is giving up $550-million in revenue as it seeks to arrest a “death spiral” in tolls on one of its most important pipeline networks.
In the face of continued steep declines in Canada’s natural gas(NG-FT4.41-0.02-0.52%) production, the company has proposed substantial - and controversial - changes to the way it collects pipeline tolls, slashing the amount it charges on its massive eastbound Mainline system and raising rates on its Alberta network.
The moves come as TransCanada grapples with the dramatic shifts in North American gas supply. The energy industry’s new-found ability to tap enormous pools of shale gas in places like Pennsylvania has brought a surge in U.S. domestic supplies and wreaked havoc with the Mainline system by both hurting prices - and therefore the economics of Alberta gas - and displacing some of the need for supply from Western Canada.
TransCanada has agreed to delay collection of some past revenue it is due and give back nearly all of the toll increase it imposed last year, in hopes that it can preserve a long-term business model for the half-century-old Mainline system. As a result, the company will forego $550-million in revenue over the next three years, but says it will recover that money over time.
In doing so, it hopes to halt a “death spiral,” an industry term that describes how rising tolls can hurt gas production - which can in turn spur even higher tolls.
“We feel that it is important for us to ensure that the pipeline remains competitive,” said Steve Pohlod, vice-president of the commercial east division for TransCanada.
The deal will see Mainline tolls drop by 25 per cent, effective Jan. 1, 2011. To compensate, TransCanada will collect 12.5 per cent more in tolls on its Alberta system, which feeds the oil sands and other gas pipelines owned by competitors. TransCanada has secured the agreement of the Canadian Association of Petroleum Producers for the new structure, which has now been submitted to the National Energy Board for approval.
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