The project would largely enable Western natural gas to transport at lower costs to the market, saving gas producers on a lot of money amid the energy downturn
With the energy downturn heavily denting the global natural gas industry, gas companies such as TransCanada Corporation (USA) (NYSE:TRP) have been long struggling with squeezed profit margins. However, in their efforts to save the already-squeezed profits, pipeline giant TransCanada is nearing to reach a deal with Canadian natural gas pipeline system.
The agreement over a new toll structure is likely to solve the obstacles that the Western Canadian natural gas faces in competing with output levels from northeastern US shale. Via the new structure, the increased transportation costs of gas to reach the market – which is at a great distance – would also be reduced.
In conversation with Reuters, Canadian Natural Resources President Steve Laut, stated: “I think we are getting closer to something that works for everybody, that is in the best interests of TransCanada and the natural gas industry here in Alberta, British Columbia and Saskatchewan.” However, Mr. Laut added that while he was confident that the agreement would be finalized, it will not be a dead end for the natural gas producers if the deal fails to produce results.
In an attempt to attract interest, TransCanada has begun an open season in the proposed toll structure. The structure would lead to the natural gas being transported to the Dawn region in Ontario. Given that the shippers enter in the 10-year commitment, they would be offered with rates as low as 75 Canadian cents per Gigajoule. This rate is lower than the original 82 Canadian cents per gigajoule proposed by TransCanada. According to both natural gas producers, Encana Corp and Canadian Natural Resources Ltd, the proposed rate was too high for the span of the contract Given that the current agreement reaches finalization, costs of the Canadian natural gas producers amid depleted gas prices would considerably be lowered.