TransCanada Corp. announced on Thursday it is investing $2.4 billion to expand its NGTL natural gas system in Western Canada as growing production in the region has filled existing capacity and knocked down prices.
TransCanada had a successful open season, and the company has binding shipping agreements that will start in November 2020 and April 2021 with average contract terms of 29 years.
“The successful open season shows strong industry support to significantly expand transmission capacity out of the basin and improve market connectivity for Canadian natural gas production,” said company chief executive Russ Girling in a statement, according to CTV News.
What is the NGTL system?
The TransCanada NGTL system is a dense web of pipelines covering Alberta and Northern British Columbia that plays a key role in transporting growing natural gas supplies from the Western Canadian Sedimentary Basin (WCSB) to premium markets across North America. The pipeline system is an astounding 24,012 kilometers (12,920 miles) in length.
Canada is the fourth largest global producer of natural gas, behind the U.S., Russia, and Iran. According to Natural Resources Canada, As of 2017, Canadian marketable resources of natural gas will sustain current production levels for up to 300 years, with Canada having a total of 77 trillion cubic feet (Tcf) of proven reserves of natural gas.
While 53 percent of Canadian natural gas production is exported, all of the exports go to the U.S. The value of Canadian net exports (exports minus imports) was $6.1 billion in 2016.
Producers are victims of their own success
Canadian resources of shale gas in areas like the Montney and Deep Basin have been unlocked, and while they are prolific, producers have been plagued by pipeline constraints and a lack of demand in some markets. Established export routes to California and the Midwestern U.S. have filled up, leaving producers to look to Eastern Canada for better prices.
This would be a reasonable thing for gas producers to look into because natural gas imports from the U.S. into eastern Canada are on the rise, due to higher supplies in the U.S. And you can bet the U.S. suppliers are selling their NG cheap because of the extra reserves they have.
TransCanada’s expansion of the NGTL pipeline will include approximately 375 kilometers of large diameter pipeline, compression facilities, meter stations and other associated facilities, and will help link more production to its Mainline system that runs to Ontario.
“TransCanada would have to invest some capital to restore the extra capacity in the Mainline, but another open season on the pipeline would be well-received,” said energy analyst Ed Kallio, principal at Eau Claire Energy Advisory, Inc.
TransCanada said it expects to file a project description with the National Energy Board by the second quarter of this year to start the review process and hopes to begin construction on the NGTL expansion in 2019.
