TransCanada said Thursday a decision by Canadian regulators advances its efforts to boost pipeline capacity for natural gas producers in Western Canada to serve downstream markets with additional supplies of the power plant fuel.
The development comes amid increased interest in the Montney shale. While the resource play has produced gas since 1998, over the last few years producers and pipeline operators have been increasingly bullish on the potential for growth in the area, in part because of the demand that would be created from further LNG exports.
TransCanada, in particular, has staked part of its future to a multibillion-dollar, multiphase expansion of its NOVA Gas Transmission system. Canada's National Energy Board has recommended the federal government approve a variance to NGTL's previously issued North Montney Mainline Project certificate, which would allow construction to start in northeast British Columbia, TransCanada said.
"These facilities are critical to the timely and economic development of the tremendous natural gas resource in the North Montney play," CEO Russ Girling said in a statement.
Western Canadian gas producers have faced ever weaker prices in recent years as growing production in the US encroaches on markets traditionally served by Canadian gas, while capacity constraints in the region limit flows to downstream markets. NGTL is Alberta's largest pipeline system, and receives up to 98% of all natural gas production receipts in the province, according to S&P Global Platts Analytics pipeline flow data.
NGTL PRODUCTION RECEIPTS ARE UP 1 BCF/D FROM 2016 LEVELS
Production receipts on NGTL have averaged roughly 11.9 Bcf/d this year to date, a 1 Bcf/d increase from 2016 levels. Over that same timeframe, production in other Western Canadian provinces has declined, as drillers concentrate operations in the low-cost Duvernay and Montney plays in northwestern Alberta. British Columbia pipeline production receipts have fallen from about 1 Bcf/d in 2016 to 880 MMcf/d this year to date, while pipeline receipts in Saskatchewan have fallen by 100 MMcf/d from 2016 levels to an average 390 MMcf/d this year to date, Platts Analytics data shows.
Recent capacity proposals such as TransCanada's long-term fixed-price initiative last year have led to a fairly rapid rise in Western Canadian output. The roughly 1.4 Bcf/d re-tolling agreement on TransCanada's mainline entered service in November last year, and led to production receipts rising by nearly 1 Bcf/d by December 2017 compared with the same month the year before. The significant net-supply length in the country means that its major downstream market is in the US. For example, production receipts in Alberta this month to date have averaged almost 11.6 Bcf/d, while demand in the province has averaged only 4.6 Bcf/d, indicating that the roughly 7 Bcf/d of net length is either exported to other provinces or to the US, or is injected into storage, Platts Analytics data shows.
That dynamic has contributed to pressure on market participants to expand outlet capacity from Western Canada, or to add new demand sources in the form of LNG export proposals, as growing production is limited both by available takeaway options and what is essentially flat demand in the region.
LNG EXPORTS ARE KEY TO ADDING GAS DEMAND FOR PRODUCERS
When NGTL's North Montney Mainline Project was originally approved in 2015, one of the conditions of that approval was a positive final investment decision on the then-proposed Pacific NorthWest LNG export project. But the lead developer, Malaysia's Petronas, scrapped the LNG project in July 2017, saying market conditions had made it uneconomical to proceed.
Sensing the possibility that would occur, TransCanada sought approval to remove the conditions and had restructured the commercial project arrangements and the associated facilities. Subject to timely federal approval of the variance that the NEB has now recommended, TransCanada said construction on the 128-mile pipeline is expected to start by the third quarter of this year, with an anticipated in-service date of mid-2019.
Even with the Petronas decision, producers and midstream operators remain enthusiastic about the potential for new LNG export capacity to be added in Western Canada. Shell-backed LNG Canada is very close to reaching a positive final investment decision for its proposed export terminal in Kitimat in British Columbia, CEO Andy Calitz said May 15 during a conference in Vancouver.
