Lowering pipe into the trench at Godin Lake Loop, Peerless Lake, Wabasca, Alberta as part of the TransCanada pipeline.Paul Connor/TransCanada Pipelines Limited (submitted)
Things are bad and getting worse for Canada's natural gas sector, whose battle with tough prices and U.S. competition has forced TransCanada Corp. to admit its earlier forecasts were too optimistic.
TransCanada is a pipeline company, but its forecasts carry substantial heft, given that it touches most molecules of natural gas pulled from the earth in Canada. So people took it seriously when it pointed last year to a strong rebound in the works, on the strength of buoyant gas prices -- $6.30 per million BTU by 2015 was its prediction -- and a production surge to 17.2 billion cubic feet a day by 2020. But it was clear those forecasts were outliers: futures markets are trading 2015 gas for about $4, and the National Energy Board calls for Canada-wide output of under 15 bcf a day by 2015.
This week, TransCanada said it was time to nudge its numbers down.
"It's clear to everyone that we've seen lower prices, and we've seen a reaction to those lower prices," said Greg Lohnes, the company's president of natural gas pipelines. He promised new predictions later this month or sometime in July.
"We have a lower gas price in it, much lower on the front end and then recovering a bit on the back end," said Karl Johannson, TransCanada's senior vice-president of Canadian and eastern U.S. pipelines.
He said the new numbers would fall somewhere between the company's "base case" and its "low case." Those numbers are dramatically different -- the "low case" falls below even the NEB's predictions, suggesting western Canadian gas output will follow an almost uninterrupted slide to 2030, tumbling to nearly 12 bcf a day by 2020 and hitting 10 bcf a day a decade later, down from around 14 today.
Of course, TransCanada didn't have much choice in changing its figures. The company's forecast for 2012 was already wildly off. It called for an average of 3.3 to 3.4 bcf a day to flow through its Mainline, the massive gas pipeline delivering western gas to central and eastern consumers. So far this year, in part because of an extraordinarily warm winter, it has seen an average of 2.4 bcf a day -- nearly 30 per cent lower than predicted.
Gas volumes through the Mainline are a critical element of the conversation, given that TransCanada's western gas forecasts have been used to uphold its case for creating a radically different set of tolls for that pipe. But tolls go higher when volumes go lower, and falling forecasts aren't likely to make for an easier discussion before the National Energy Board, which is currently in the midst of a hearing on those tolls.
TransCanada has told the NEB that, even with a lower forecast it believes its new tolling model -- which shifts Mainline tolls onto other pipeline networks, including the Alberta system that carries substantial volumes that never make it onto the Mainline -- is better than the status quo.
But those on the other side of the table say a lower forecast has major consequences.
Less gas means "Mainline tolls that would be higher than they have talked about in the coming years and even more capacity that would not be needed for the provision of natural gas service," said Nick Schultz, general counsel for the Canadian Association of Petroleum Producers. "It is important that they provide updated information as soon as possible so we understand what direction the Mainline is headed: are they going to come out of this as they said originally?"
Nathan VanderKlippe