* Reaches interim toll agreement
* Cuts depreciation, defers cost recovery (Adds details)
CALGARY, Alberta, Dec 9 (Reuters) - TransCanada Corp TRP.TO has reached an agreement on tolls with customers on its massive main natural-gas pipeline that will see the cost of shipping on the line fall.
The company, Canada’s largest pipeline operator, said it has filed the toll agreement for the line, which runs from Alberta to the Dawn hub in southern Ontario fall, with regulators.
TransCanada is seeking to keep tolls on its mainline system competitive despite lagging volumes. The system once carried around 6 billion cubic feet a day and now carries 3.1 bcfd as Western Canadian production falls.
It expects volumes on its system to rise by 2014 as new shale gas discoveries in Western Canada are developed.
“TransCanada expects mainline volumes to stabilize and begin rising 100-200 (million cubic feet) per year, ultimately plateauing at 4 (billion cubic feet per day) as additional shale gas volumes offset conventional declines,” Chad Friess, an analyst at UBS Securities, wrote in a note to clients.
The company said that under the new agreement, which has been approved by the Canadian Association of Petroleum Producers, which negotiates tolls on behalf of its members, the cost of shipping one gigajoule (0.95 million British thermal units) of gas from Alberta to Dawn next year will drop to C$1.23. Without the agreement the toll would have risen to C$2.45 per gigajoule.
Because the pipeline system is regulated, shippers on the mainline pay for the line’s costs and a guaranteed return for TransCanada. But as volumes decline, there are fewer shippers to cover those fixed costs, threatening higher tolls that, at a time of weak gas prices, would cut into producer profits.
TransCanada said it was able to cut tolls by lowering 2011 depreciation charges on the mainline by C$150 million ($149 million) and deferring recovery of C$300 million in revenue shortfalls that arose from overestimating the amount of gas that would be shipped on its lines this year.
It will boost tolls for shippers on its intra-Alberta natural-gas pipeline system to make up for the shortfall.
TransCanada shares were 2 Canadian cents to C$37.73 midmorning on the Toronto Stock Exchange.
$1=$1.01 Canadian Reporting by Scott Haggett; editing by Peter Galloway