TransCanada eyes NGTL expansion without LNG exports

TransCanada today asked Canadian regulators for approval build the majority of a planned expansion on its Nova Gas Transmission (NGTL) system in western Canada even if the delayed Pacific NorthWest LNG (PNW LNG) export project is not built.

The Calgary-based midstream company said there is enough North American demand for Montney shale gas to justify most of the planned North Montney Mainline (NMML) expansion.

TransCanada has secured new 20-year contracts with 11 shippers for 1.485 Bcf/d (42mn m³/d) of firm service on the planned expansion, which would allow construction of C$1.4bn ($1.05bn) in infrastructure, it said in its application to Canadian energy regulator National Energy Board (NEB).

"These new facts and changed circumstances demonstrate an immediate and long-term need for the facilities independent of the PNW LNG project," TransCanada said in its application to Canadian energy regulator National Energy Board (NEB).

TransCanada asked the NEB for a variance to allow construction of that capacity without the requirement for positive investment decisions by PNW LNG on Lelu Island, British Columbia (BC), and an associated pipeline to bring Montney gas to that export project. TransCanada wants to start construction in the second half of 2018 and bring the expansion on line over a two-year period beginning in April 2019.

The NMML expansion would connect additional Montney shale production to the existing 15,251-mile (24,544km) NGTL system, the primary gathering system for Alberta and northeastern BC. It moves production from the Duvernay, Montney and Horn river fields. It connects with the Canadian Mainline, Foothills system and other third-party pipelines, and delivers gas to major markets in Alberta and British Columbia and in the US.

The NEB approved the NMML expansion in April 2015 with conditions, including positive investments decisions by PNW LNG and TransCanada's proposed $5bn, 600-mile Prince Rupert Gas Transmission pipeline. The pipeline would connect with the NMML expansion and run westward across mountainous terrain to bring feed gas to PNW LNG.

NEB required positive investment decisions by those two projects because the NMML expansion was originally mainly intended to serve PNW LNG, as the Montney shale is largely disconnected from the regional grid.

But declining production in the Western Canadian sedimentary basin and the competitiveness of the Montney basin has increased North American demand for the project.

PNW LNG, led by Malaysia's state-owned Petronas has delayed an investment decision on the $36bn project that was expected last year. Falling oil prices and cheaper US LNG projects have hurt the economics of Canadian LNG export projects, as most long-term Asian LNG contracts are linked to oil prices.

NMML was originally scheduled to have capacity of 2.4 Bcf/d (68mn m³/d). Canadian producer Progress Energy, which in 2013 was acquired by Petronas to provide shale gas for LNG exports, had contracted for 2-2.1 Bcf/d of the capacity. Petronas spearheads the PNW consortium with a 62pc share.

Petronas would acquire about 700mn cf/d of the proposed expansion and 10 other parties have contracted for combined 785mn cf/d. The other parties are Aitken Creek Gas Storage, Arc Resources, Black Swan Energy, Canbriam Energy, ConocoPhillips, Kelt Exploration, Painted Pony Petroleum, Saguaro Resources, Tourmaline Oil and UGR Blair Creek.

If the PNW LNG project is built, additional infrastructure costing about C$472mn would be added on NMML, for a total cost of about C$1.86bn.

PNW is conducting a second review of the economics of the LNG project that is expected to be completed this summer. It is unclear when an investment decision might be made, but today's NEB application said that if a positive investment decision is made by 1 July 2019, Progress would increase its capacity on NMML to 2 Bcf/d.