(Adds detail on tolls, TransCanada comment)
By Nia Williams
CALGARY, Alberta, Oct 13 (Reuters) - TransCanada Corp launched an open season on Thursday to gauge interest from shippers for a new toll proposal on its natural gas mainline from western Canada to southern Ontario.
The company said the contracts are critical to help western Canadian producers preserve market share in high-value eastern markets, where they have to compete with U.S. shale gas from the Marcellus and Utica plays.
Under the new structure shippers signing up to 10-year term will pay between 75 and 82 Canadian cents per gigajoule, depending on the volumes they commit to.
However, TransCanada is also offering shippers the option to exit the contract after five years, with a two-year notice period. During that notice period tolls would increase to between 83 Canadian cents and C$1.15 per gigajoule, depending on the total length of contract and the volumes.
The option for a shorter term came after shippers pushed back against TransCanada’s initial proposals for a 10-year toll, saying rates were still too high for such a long-term commitment.
Stephen Clark, TransCanada’s senior vice president of Canadian Natural Gas Pipelines, said the open season comes after extensive conversations with shippers, but the company would not consider dropping the toll structure any lower.
“If people are struggling with these tolls they have to look at how else they can be competitive,” Clark told Reuters in an interview.
“What we get out of this is some back-end enhancement of the viability of the mainline as we get into the middle part of the next decade. What producers get out of it is near-term toll reduction that helps them preserve the market they have served over the last 50 years.”
At present, it costs roughly C$1.41 a gigajoule to ship natural gas from western Canada to the Dawn hub in Ontario.
TransCanada is looking for shippers to sign up to move at least 1.5 petajoules of natural gas per day in total before the open season closes on Nov. 10.
RBC analyst Robert Kwan said in a research note there were worries that even the low-end of the toll range at 75 Canadian cents might not be enough to induce producers to sign up, but it would be interesting to see how the open season fared.
“The ability to opt-out and shorten the contract to five years may help quell some of the concern about a 10-year agreement being too long,” he added. (Reporting by Arpan Varghese in Bengaluru; Editing by Jeffrey Benkoe and Chris Reese)