(Adds detail on tolls, TransCanada comment)
By Nia Williams
CALGARY, Alberta Oct 13 TransCanada Corp
launched an open season on Thursday to gauge interest
from shippers for a new toll proposal on its natural gas
mainline from western Canada to southern Ontario.
The company said the contracts are critical to help western
Canadian producers preserve market share in high-value eastern
markets, where they have to compete with U.S. shale gas from the
Marcellus and Utica plays.
Under the new structure shippers signing up to 10-year term
will pay between 75 and 82 Canadian cents per gigajoule,
depending on the volumes they commit to.
However, TransCanada is also offering shippers the option to
exit the contract after five years, with a two-year notice
period. During that notice period tolls would increase to
between 83 Canadian cents and C$1.15 per gigajoule, depending on
the total length of contract and the volumes.
The option for a shorter term came after shippers pushed
back against TransCanada's initial proposals for a 10-year toll,
saying rates were still too high for such a long-term
Stephen Clark, TransCanada's senior vice president of
Canadian Natural Gas Pipelines, said the open season comes after
extensive conversations with shippers, but the company would not
consider dropping the toll structure any lower.
"If people are struggling with these tolls they have to look
at how else they can be competitive," Clark told Reuters in an
"What we get out of this is some back-end enhancement of the
viability of the mainline as we get into the middle part of the
next decade. What producers get out of it is near-term toll
reduction that helps them preserve the market they have served
over the last 50 years."
At present, it costs roughly C$1.41 a gigajoule to ship
natural gas from western Canada to the Dawn hub in Ontario.
TransCanada is looking for shippers to sign up to move at
least 1.5 petajoules of natural gas per day in total before the
open season closes on Nov. 10.
RBC analyst Robert Kwan said in a research note there were
worries that even the low-end of the toll range at 75 Canadian
cents might not be enough to induce producers to sign up, but it
would be interesting to see how the open season fared.
"The ability to opt-out and shorten the contract to five
years may help quell some of the concern about a 10-year
agreement being too long," he added.
(Reporting by Arpan Varghese in Bengaluru; Editing by Jeffrey
Benkoe and Chris Reese)