August 19, 2016 / 8:26 PM / 3 years ago

TransCanada offers 42 percent gas pipeline toll cut on long-term contracts

CALGARY, Alberta (Reuters) - Pipeline company TransCanada Corp (TRP.TO) is offering tolls as low as 82 Canadian cents per gigajoule on its natural gas mainline from western Canada if enough producers sign up to long-term contracts, a company executive said on Friday.

Stephen Clark, TransCanada’s senior vice president for Canadian natural gas pipelines, said cheaper tolls are crucial if companies in areas like the Montney and Duvernay shale plays are to compete with U.S. gas producers in eastern markets.

The new toll would be a 42 percent cut from the current shipping price of roughly C$1.41 a gigajoule to go from Alberta and British Columbia to markets in Ontario, and depends on customers signing up to 10-year contracts to ship at least two petajoules of natural gas in total on the line.

Clark said the boom in U.S. shale, in particular the Marcellus play in Appalachia, meant more natural gas was flooding into the southern Ontario market and displacing traditional western Canadian supply.

While the remote Montney and Duvernay gas plays can compete with U.S. shale on cost of production, their greater distance from market increases delivery costs and the price of western Canadian gas in Ontario.

“If that market starts to acquire gas from other basins, they will essentially forgo western Canadian supply,” Clark said. “Part of the reason we are doing this is we see a supply overhang in western Canada if we don’t retain those markets.”

TransCanada has been in talks with producers for the last three or four months and is hoping to launch an open season to formally gauge interest in the new tolling system in September.

However, Clark said the company would need to see sufficient interest from shippers in long-term contracts to go ahead with the open season.

“We would like to get into multi-hundreds of millions of commitments, and if we could get north of a billion cubic feet or a petajoule of commitment, that would certainly give us sufficient indication that we should go forward,” he said.

Some producers are reluctant to commit because they are unused to 10-year contracts, Clark added, while others are unfamiliar with selling in the Ontario market.

TransCanada’s current settlement in place with the Mainline shipper group expires in 2020.

Editing by Jonathan Oatis

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