Why TransCanada’s Lowball Pipeline Price is Not a Panacea

TransCanada, one of Canada’s leading midstream/pipeline companies, cooked up a deal last year to pipe natural gas from Canada’s West Coast to the East Coast in order to fend off cheap supplies of Marcellus/Utica gas that will flow into Canada when/if the NEXUS and Rover pipelines get built (see TransCanada Pipe Drops Price 42% to Compete with Marcellus/Utica). TransCanada dropped their pipeline price to lure drillers by (theoretically) making it less expensive to get gas from Western Canada, some 2,400 miles away, than from the Marcellus, just 400 miles away. In October, TransCanada launched an open season to lock up customers for the new, lower-priced option. The open season was a bust because TransCanada insists on a 10-year commitment (see TransCanada Plan to Lowball M-U Gas Using Canada Pipeline a Bust). TransCanada rejiggered the terms being offered and reopened the open season. This time it worked (see TransCanada Says Plan to Lowball M-U Gas Worked, Shippers Sign Up). Even though natural gas from western Canada will soon flow to Ontario to compete with Marcellus/Utica gas coming from the Rover Pipeline (and perhaps NEXUS, if FERC approves it), analysts are warning that TransCanada’s plan is not a panacea for Canadian producers. Why? Because that gas will have to compete with a flood of Marcellus/Utica gas, and that means the prices will drop like a rock. Although western producers will be locked in for at least five years by signing with TransCanada, analysts are predicting that LNG exports will lure many of them away to sell gas for higher prices to overseas markets. And when that happens (in the next 5-10 years), gas flowing along TransCanada’s mainline will once again slow down to a trickle…

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