Northeastern United States: A New Frontier Or Waterloo For Canadian Natural Gas?
Authors: Fruehauf Winfried 
Published: March 2010

New England and the Middle Atlantic Region have a long tradition of being the confrontational focus between fuel oiland natural gas from the southern U.S.A. Now, Canadian natural gas may become in VOlved, resulting in vigorous competition for a position in these regions. Is all this attention and emotion justified when one more closely examines the potential market and its traditional energy suppliers?

The "four Ts" (Trans Canada Pipelines, Tennessee Gas Transmission, Texas Eastern Gas Transmission and Transcontinental Gas Transmission) have joined to compete for the right to transmit and sell all of the 854.4 MMCFD of natural gas currently approved for export at Niagara Falls. Ohio Interstate and MidCon are also in the race, but with these differences:they are proposing as import point, Monchy, Saskatchewan, andthey are offering contract carriage rather than carriage and selling.

MidCon's proposal differs from Ohio Interstate's in that it would minimize the Canadian gas molecule movement through displacements.

The three contestants are now busy gearing up for filing ‘cross-answering’ documents with the Federal Energy Regulatory Commission (FERC) (January 15, 1985 deadline). In the meantime, they are promoting their own schemes while attempting to throw cold water on those of their competitors. While all of the evidence has yet to be presented, the MidCon scheme appears to offer the lowest transmission cost. The key issues are: tolerable market price and minimum acceptable producer net-back, with transmission cost as the variable or connecting link.

The ultimate marketer of the natural gas in all likelihood will care little about the suppliers' colours, provided that the: tolerable market price is not in jeopardy and the gas supply channels are secure. The producer, on the other hand, will probably care little about the transporter's colours, provided that his net-back is maximized and the market offers reasonable permanence and certainty. The main onus is, therefore, on the link, the transporter.

Transmission charges for natural gas have always formed a significant fixed-cost element of the laid-down cost of natural gas and related services in the northeastern U.S.A. Furthermore, gas distribution costs tend to be high in areas of low customer density.

A new element is that the FERC will no longer permit the inclusion of the cost of purchased natural gas in minimum bills of interstate pipelines, and minimum take obligations of pipeline customers have also disappeared as of November 1, 1984. Pipelines will have to try to minimize their cost of purchased gas anddistributors will have to select the pipeline offering the most advantageous terms and conditions of gas supply and service.

These provisions will probably move the economics of new pipeline facilities into sharper focus, regardless of source. Mobil Oil Canada, for example, has expressed concern about the impact of the rule on its Venture Project: "Without take-or- pay commitments, it is difficult to see how a sales contract for Venture gas could be concluded."