TransCanada Corporation (USA) (NYSE:TRP) is debating with considerations of giving a cheaper service to a majority of its customers who are using its pipelines to move natural gas to Canada. In what may sound like a toll relief for shippers, the projected 10-year transportation contracts from Alberta to Ontario by the company would cost 40% – 50% less. It is the company’s intention to boost business especially on it systems which include Canada-only mainline and the Great Lakes network. According to Encana Corp (USA) (NYSE:ECA) which is part of the unfolding talks says that the cost reduction will be one of the many efficient improvements from which shippers will benefit.
The meaning of the long-term service
The new price relief may not have any effect on tariffs especially for the services at hand. However, it will be a platform for attracting new volumes into the system from Empress, Alberta to Dawn, Ontario. Speaking on a conference call, executive vice-president of midstream at Calgary-based Encana Renee Zemljak pointed out that the ongoing talks have continued to create so much interest among producers. Nevertheless, Encana has declined to make comments on the latest unfolding.
The rate cut which is currently at C$1.41 per gigajoule from Empress to Dawn would probably trigger a take back of traditional market by Canadian companies from the Americans. According to Goldman Sachs Investment Research, the 85 Canadian cents Empress-to-Dawn tariff would have higher returns on gas. But nonetheless, the success of the discussions will be determined by the producer’s willingness to adapt to the long-term contract of shipping significant volumes of 1 billion to 2 billion cubic feet a day. It is the only way that the system will gain valuable business.
Being one of the largest North American natural gas producers, it will play a fundamental role in determining the possibility of having the projected rate cut. Its Chief executive officer, Doug Suttles says that the reduced tolls would give Encana’s Canadian gas a competitive ground Encana’s Canadian gas. The company is already reaping high having register solid returns from sales.