TransCanada plans $5.1 billion pipeline to LNG terminal

TransCanada Corp. (TRP), builder of the Keystone XL oil pipeline, was selected to construct and operate a C$5 billion ($5.1 billion) natural-gas conduit to Petroliam Nasional Bhd’s planned export terminal in British Columbia.

The Prince Rupert Gas Transmission project has a proposed initial capacity of 2 billion cubic feet a day from the Montney region to the planned liquefied natural gas terminal in Port Edward, British Columbia, TransCanada said today in a statement. The pipeline may begin operation in 2018, subject to government and corporate approvals.

Progress Energy Canada, purchased by Petronas last month for C$5.2 billion, selected Calgary-based TransCanada to build the Prince Rupert pipeline, which will be capable of expansion to 3.6 billion cubic feet a day, according to today’s statement. The project is TransCanada’s second proposed pipeline to an LNG export terminal on the West Coast, following its previously announced Coastal GasLink pipeline.

“From a trading perspective, we view today’s announcement as an unexpected positive development that should provide support for TRP’s shares,” Pierre Lacroix, an analyst at Desjardins Securities Inc., said in a note to clients today. TransCanada, which trades under the symbol TRP, rose 2.4 percent to C$48.39 at the close in Toronto, and earlier rose to C$48.40, its highest intraday since it began trading more than 30 years ago.

‘Competitive Process’

Gas producers in British Columbia’s Montney Shale, far from North American population centers, are seeking Asian markets for the heating and power-plant fuel. Petroliam Nasional, or Petronas, as Malaysia’s state-owned energy company is known, has said a final investment decision on the terminal, with an estimated cost C$9 billion to C$11 billion, is expected late next year.

Progress Energy Canada, purchased by Petronas last month for C$5.2 billion, selected Calgary-based TransCanada to build the Prince Rupert pipeline.
Spectra Energy Inc. (SE) was involved in a “competitive process” to build a pipeline to the Progress Energy terminal, Caitlin Currie, a Spectra spokeswoman, said in a telephone interview today. Spectra already is planning a pipeline to serve a terminal proposed by BG Group Plc (BG/) in Prince Rupert.

Winning Contracts

“It looks like TransCanada is going to be the builder of choice to get gas to the West Coast, with two pipelines running two separate paths, one to Prince Rupert and one to Kitimat,” said Steven Paget, an analyst at FirstEnergy Capital Corp. in Calgary.

TransCanada was selected in June to build Coastal GasLink, the C$4 billion supply pipeline for an LNG export terminal proposed in Kitimat, British Columbia by Royal Dutch Shell Plc, Mitsubishi Corp., Korea Gas Corp. and PetroChina Co. That pipeline also still requires corporate and government approvals.

TransCanada probably won the contracts because of its ability to build big gas pipelines and the option it provides for British Columbia gas producers to sell into North American gas markets via its existing system, if LNG facilities don’t require all the supply at any given time, Paget said.

Recoverable gas in western Canada has risen to 400 trillion cubic feet and reserves could be larger than that, attracting export opportunities, said TransCanada Chief Executive Officer Russ Girling, speaking by phone from Prince George, British Columbia.

TransCanada, which currently transports 1 to 1.5 billion cubic feet of gas a day from British Columbia, expects its host of expansion projects in the region will let it move 2.5 to 3 billion cubic feet a day from the province’s northeast next year, Girling said.

“That gas has to find a market in advance of the development of the infrastructure required to move it to export markets,” he said. TransCanada has spent about C$1 billion expanding its gas pipeline network in northeastern British Columbia over the last five years, he said.

Boost Earnings

The Prince Rupert pipeline will help TransCanada boost earnings later in the decade, after its Keystone XL line, set to deliver oil-sands production to U.S. Gulf Coast refiners comes into service, Lacroix said. Taken together, spending on the two LNG pipelines would amount to C$9 billion, more than the $7.6 billion cost of Keystone XL.

“We’re still hoping Keystone XL gets built, but we were looking past 2014 to 2015 and without Keystone XL they were just going to be generating huge amounts of cash and now they have a place to spend the cash that will help them earn more money,” said Michael Formuziewich, who helps manage C$2.2 billion at Leon Frazer and Associates Inc. in Toronto, including shares in TransCanada.

Mainline Gas

The Prince Rupert line will connect British Columbia gas to TransCanada’s existing network of gas pipelines including Canada’s longest conduit, the 8,763-mile (14,101-kilometer) Mainline, which moves western Canadian gas as far as Quebec’s border with Vermont. The viability of TransCanada’s Alberta-to- Quebec Mainline has been threatened in recent years by declining gas volumes in Alberta and competing supply from the U.S. Northeast that have led to a doubling of tolls on the line.

TransCanada also plans a C$1 billion to C$1.5 billion extension of its Nova Gas Transmission Ltd. pipeline to reach additional gas supply in the North Montney region, according to today’s statement. That pipeline could begin operation in 2015.