Home » News » TransCanada points to excess capacity
News
TransCanada points to excess capacity
News Articles | Calgary Herald | Dina O'Meara | May 01, 2010
Read the full article on the originating site
Canadian natural gas and oil pipelines likely will run underutilized for up to five years, but the lack of volumes likely will have little impact on TransCanada Corp.’ s bottom line, executives said.
Soft power prices rather than excess pipeline capacity took a bite out of first-quarter results, TransCanada said Friday.
Regulated tolls and contracted volumes will cover the surplus capacity on Trans-Canada’s natural gas main line and its soon-to-launch 500,000-barrel-per-day Keystone oil pipeline, said chief executive Hal Kvisle.
“When that pipeline comes on with a sudden increment of capacity, there’s no way that’s not going to result in more pipeline capacity than Alberta needs,” Kvisle, who retires in June, said during TransCanada’s annual meeting.
Kvisle said long-term contracts totalling up to 900,000 barrels per day underpin both Keystone to the Midwest and its expansion to the U.S. Gulf Coast.
TransCanada expects oil to run the first leg of Keystone, which stretches from Hardisty to Wood River, Ill., in June.
The 435,000-barrel-per-day line will open at the same time as rival Enbridge Inc.’ s 450,000-barrel-per-day Alberta Clipper running to Superior, Wis.
Both lines have faced challenges from shippers complaining of higher tolls because of lower volumes, resulting primarily due to oilsands projects being delayed amid the economic crisis.
TransCanada reported an 11.4 per cent drop in first-quarter profits on poor power prices in Alberta and higher costs around new projects.
Net income fell to $296 million, or 43 cents per basic share, from $334 million, or 54 cents per share, from a year prior.
Low power prices, higher operating costs due to outages, and higher development costs pulled down earnings, the corporation said.
TransCanada said it expected to see growth in energy demand and supply within the next five years, and the corporation was covered until then.
“The slowdown in the rate of growth in development of the oilsands doesn’t impact our shippers,” chief operating officer Russ Girling said following the meeting. “They’ve already got their barrels dedicated to the direction they want to go.”
The company expect another million barrels of oilsands production to come into production by 2015, filling the available pipeline capacity, said Girling, who takes over from Kvisle in June.
A brighter outlook for the future did not appease three U.S. refiners who are suing TransCanada in civil court, accusing it of unreasonably increasing tolls on Keystone.
In court filings in the United States, Sinclair Oil Corp., CVR Energy Inc., and National Co-operative Refinery Association said Keystone tolls jumped 145 per cent for the Canadian portion of the line and 92 per cent on the U.S. section on 10-year contracts.
Analysts expect Keystone to run lower volumes than capacity into 2016, suggesting shippers won’t see tolls go down in the near future.
Producers will be paying a fixed-rate toll whether they flow oil or not, including the three refiners currently suing TransCanada for an increase of rates on Keystone, said analyst Steven Paget with FirstEnergy Capital Corp.
“Our society still seems to respect the sanctity of contract,” Paget said. “TransCanada can’t take back the pipeline, so it would be rather difficult for someone to take back the contract.”
First commercial shipments on Keystone are expected to flow in 2011. The refiners represent about 10 per cent of 910,000 barrels per day of contracted volumes on the project, with shippers contracting the remaining 90 per cent of the line supportive of the project and eager to see it start flowing, Girling said.
“There is always a slight possibility of risk, and you can’t say with certainty the courts will rule in favour of Keystone, but generally it looks low risk,” Paget said.
“Nobody went into this involuntarily. The central fact of Keystone is that it was based on private agreements; it’s not a common carrier.”
Rival pipeline operator Enbridge Inc. came out the victor after oilsands producer Suncor lost a bid with U.S. regulators to delay the pipeline’s Alberta Clipper project from Hardisty to Superior, Wis.
Suncor argued tolls on the Enbridge main line would rise to support the lack of volumes on the 1,6000-kilo-metre Clipper.
On the natural gas side, TransCanada said it collected between 10 per cent and 15 per cent less than anticipated on tolls during the first quarter, but didn’t anticipate adjusting it in 2010.
“We likely will defer it (to shippers) over more than a one-year period,” Girling said.
TransCanada has 2.5 billion cubic feet per day contracted from British Columbia shale plays, which is expected to come online between 2011 and 2013. Until then, the company is expecting a dip in throughput that likely will result in increased tolls, he said.
TransCanada’s comparable earnings during the quarter, which exclude most one-time items, fell 4.4 per cent to $328 million, or 48 cents per share, from $343 million, or 55 cents per share during the first quarter or 2009.
Analysts, on average, had expected to company to post comparable earnings of 50 cents, according to Thomson Reuters.
Revenue fell 10.3 per cent to $1.96 billion.
Tagged with: transcanada, keystone, revenues
