Transportation Patterns for Natural Gas Are Changing

April 2012

• Gas production in Western Canada has been declining, prompting producers to look for other methods of extracting gas from unconventional areas. Over the past several years, producers have been developing shale gas supply from the Marcellus formation in New York, Pennsylvania and West Virginia and are now looking for ways to transport this supply to eastern North American markets.
• US pipelines have constructed facilities to allow Marcellus gas to flow westward to the TransCanada system at Niagara Falls and Chippawa in Ontario. TransCanada, Union Gas and Enbridge Gas Distribution are proposing to construct incremental facilities to ensure this supply can reach markets in Central and Eastern Canada.

Natural gas markets in North America have changed in recent years. Supply from Western Canada, which traditionally moved to eastern markets via the TransCanada PipeLines system, is slowly being displaced by gas supply from the Marcellus shale formation in New York, Pennsylvania and West Virginia.

TransCanada started to transport natural gas from Alberta to eastern markets in 1958 and continues to do so today. Natural gas utilities in Eastern Canada contract for capacity on the pipeline and operate the capacity at or near 100% load factor. During the summer when demand is low, gas is injected into storage and later withdrawn during the winter when demand is greater than the contracted capacity. Utilities use Storage Transportation Service (STS) to move this storage gas from Dawn in Ontario to Central and Eastern Ontario and Quebec.

Smaller amounts of gas are transported on US pipelines to Ojibway, Ontario (near Windsor) and then on the Union Gas system to Dawn. In 1999, the Alliance and Vector pipelines added more transportation capacity from Western Canada. Later, US Rockies gas moved east to Chicago, and some of it flowed from there on the Vector pipeline into Dawn.

Over the past decade, gas production in Western Canada has been declining at significant rates, prompting producers to look for other methods of extracting gas from unconventional areas. Producers have been developing shale gas supply from the Marcellus formation over the past several years and are now looking for ways to transport this supply to eastern North American markets. US pipelines have constructed facilities to allow Marcellus gas to flow westward to the TransCanada system at Niagara Falls and Chippawa, Ontario. TransCanada, Union Gas and Enbridge Gas Distribution are proposing to construct incremental facilities to ensure this supply can reach markets in Central and Eastern Canada.

TransCanada Open Season

Transportation capacity between the end of Union's Dawn-Parkway transmission system at Parkway and TransCanada's Maple compressor station north of Toronto is currently constrained. This constraint limits the amount of gas that can be transported from Union's Dawn-Parkway system to Eastern Canadian and US markets via TransCanada. TransCanada filed an application with the National Energy Board to build additional facilities between Parkway and its gate station near Maple to increase capacity and to provide bi-directional flow capability on TransCanada at Niagara. TransCanada is currently waiting for a decision from the regulator. Service is expected to begin November 1, 2012.

TransCanada announced an open season on March 30, 2012 for firm transportation service from Niagara and Chippawa to all delivery points including points east of Parkway such as Enbridge Central Delivery Area, Iroquois/Waddington, Enbridge Eastern Delivery Area, Gaz Metro Eastern Delivery Area and East Hereford. Gas from Niagara and Chippawa would flow west to the Union Gas system at Kirkwall. The gas would then continue to flow north-easterly to Parkway and beyond or south-westerly on the Union Gas system to Dawn for injection into storage.

TransCanada is prepared to construct facilities for Firm Transportation, STS, Firm Transportation - Short Notice and Short Notice Balancing Service for a minimum term commitment of 10 years.

The new in-service dates are November 1, 2013 and November 1, 2014, depending on the quantity and path bid of applicants. The open season closes on May 4, 2012.

Union Gas Open Season

While TransCanada plans on increasing capacity between Parkway and Maple, the constraint still remains a significant concern to Union and its long-term plans. The constraint prevents Union from selling Kirkwall-Parkway capacity to customers wishing to source gas from the Marcellus region for markets east of Parkway. On March 13, 2012, Union announced an open season for the Parkway Extension Project, offering 500,000 GJ/day of firm transportation service on a proposed new pipeline from a new interconnect near Union's Parkway compressor station to a new interconnect with the TransCanada system at or near Maple.

Enbridge Gas Distribution is looking to increase capacity to its distribution system in the Greater Toronto Area. As a result, Enbridge and Union Gas will jointly own the first 22 kilometres of the Parkway Extension Project, at which point Enbridge will build a gate station that will feed gas into their existing system.

Union's open season closed on April 25, 2012 and the expected in-service date is November 1, 2013.

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