/Canadian gas producers, U.S. commodity traders face off over TC Energy pipeline

Canadian gas producers, U.S. commodity traders face off over TC Energy pipeline


CALGARY – A fight over how TC Energy Corp. operates its natural gas pipeline network in Alberta has pit Canadian natural gas producers against U.S. commodity traders at a hearing before the country’s pipeline regulator, which is being asked to pick a side quickly as the gas sector “is in crisis.”

The two sides made their case before the Canadian Energy Regulator, previously called the National Energy Board, in a jam-packed oral hearing Wednesday, in which the CER considered an expedited application from TC Energy to change, for the second time in two years, how it operates its Nova gas transmission system – which is the largest gas pipeline network in the country.

TC Energy, previously known as TransCanada, asked to make the change to the Nova system in late August after tremendous pressure for change from the Alberta government and domestic gas producers. They said the pipeline giant’s approach to restricting access to the pipeline system during period of maintenance and construction was hurting the industry, cratering local commodity prices and causing corporate bankruptcies by denying producers access to gas storage facilities.

Ahead of Wednesday’s hearing, 22 Canadian natural gas producers and the Alberta Department of Energy filed letters supporting TC Energy’s application, which asked the CER to approve the application quickly.

Among those supporting the application are some of the country’s largest gas producers, such as Tourmaline Oil Corp.; Shell Canada Energy; Paramount Resources Ltd.; and BP Plc’s Canadian subsidiary, BP Canada Energy Group ULC.

One executive, who declined to speak on the record during the hearing, said there is a tidal wave of support for the change within the Canadian gas sector, and companies want it immediately.

“The Canadian natural gas producing industry is in crisis,” said Colin King, a lawyer acting on behalf of the Alberta Department of Energy. “Alberta fully and strongly supports the application.”

BP even argued in its letter that TC Energy’s application for a temporary change – which would last until 2021 – didn’t go far enough. The letter noted, “that the temporary service protocol principles could, and perhaps should, apply across the NGTL system on a permanent and annual basis.”

On the other side of the issue, four companies – including U.S. commodity traders Sequent Energy and Freepoint Commodities LLC, Spanish utility Iberdola Canada Energy Services and Canadian Fertilizers Ltd. – filed letters of opposition, asking the CER to deny the application.

“We are four business days away from October,” said David Wood, a lawyer with Torys LLP acting on behalf of Stamford, Ct.-based Freepoint Commodities and Houston-based Sequent Energy, adding that it is “neither economically efficient, nor is it fair” to ask companies that have been transacting in the market to make a major changes in such a short period of time.

Wood said the change should be delayed until April 2020.

… potential unintended consequences have not been addressed

Terry Hutch, Canadian Fertilizers vice-president, supply chain

Terry Hutch, Canadian Fertilizers vice-president, supply chain, described the change as government intervention because the Alberta government pushed TC Energy to implement the change. He said this intervention “picks winners and losers” in the market and could bring about potential unintended consequences, which he did not identify.

“Those potential unintended consequences have not been addressed,” Hutch said.

Fertilizer companies use natural gas as an input for their own products and contract to ensure a steady supply of gas for their operations.

The Alberta government and domestic natural gas producers met throughout the summer to devise a plan that would rescue natural gas prices, which have been extremely volatile during periods of maintenance on TC Energy’s Nova system.

The meetings resulted in TC Energy’s application to change the service priorities, which it first filed on Aug. 26.

The Alberta benchmark natural gas price, called AECO, averaged just 64 U.S. cents per thousand cubic feet on Tuesday, which 25 per cent of the value of the Henry Hub benchmark natural gas price that averaged US$2.47 per mcf on the same day.

At various times this year, generally while TC Energy was performing maintenance on its Nova pipelines, AECO gas has traded under 10 cents per mcf.

TC Energy is scheduled to undertake additional maintenance to the system on Oct. 1 as it works to expand and de-bottleneck the Nova system, and producers are concerned that prices will crater once again without urgent action from the CER.

“It is critical that this application be approved as quickly as possible,” said Evan Dixon, a partner with Burnet, Duckworth and Palmer LLP acting on behalf of Peyto Exploration and Development Corp.

Peyto is among the 22 gas producers that wrote to the CER in advance of the hearing, expressing support for the application to change how TC Energy operates the Nova system.

“We urge, or request, the CER to approve this as quickly as you can,” said Michael O’Brien, vice-president of marketing at Jupiter Resources Inc., a privately held company that produces 300 million cubic feet of gas per day.

A spokesperson for the CER said the hearing was expected to last one day – the hearing was still ongoing at press time – and commissioners have noted the producers’ request for an expedient decision, but would not say when a decision would be made.

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