Canadian Pipeline Boom, Power Degregulation Boosting U.S. Trade

Issue 2 and Volume 104.

As in the United States, deregulation is the number one issue in the Canadian power sector, as the nation undergoes the slow process in a somewhat mirror image of the U.S. trend. The reforms are expected to help integrate the United States and Canadian electricity markets more closely, according to a recent Energy Information Administration report on Canada.

Alberta was the first province to create a competitive generation market, with location-based rates and a spot market.

Ontario’s deregulation plan is an ambitious effort to integrate the Canadian and U.S. grids into one market to spur competition and exports. Ontario plans to have a $7 billion competitive power market in place before the end of this year. Deregulation is causing Ontario Hydro to substantially reduce its share of the market over the next decade by selling plants and leasing assets.

U.S. rules allow Canadian companies to market directly to customers in the United States and three Canadian utilities have been given FERC permission to do so. Ontario Hydro does not yet have permission because FERC fears that the utility’s monopoly position in Canada gives it an unfair advantage.

Currently, most of Canada’s electricity exports come from Quebec, Ontario and New Brunswick, and are sold into New England and New York. British Columbia and Manitoba also export large amounts of power into Washington, Minnesota, California and Oregon. In the past few years, there has been a big increase in U.S. utilities and brokers applying for export licenses to export their power to Canada.

U.S.-based Duke Energy purchased Chalifour, Marcotte & Associates of Montreal last August as the base for Duke’s Quebec operation. That purchase, along with Duke’s 1998 purchase of Toronto-based Tescor Energy Services, will make Duke Canada’s largest retail energy services provider.

Natural Gas

Canada has more than 65 trillion cubic feet of proven natural gas reserves, mainly in Alberta. Canada produces nearly 5.9 Tcf of natural gas annually and is the third largest gas producer in the world behind the United States and Russia. Canada is the second largest gas exporter in the world.

Canadian natural gas consumption is expected to grow 53 percent by 2020, primarily due to its increasing use as a fuel for electricity generation. The Canadian Energy Research Institute estimates that gas demand for electric generation could more than triple in the next decade.

Two major natural gas finds occurred in Canada during 1999. Chevron found reserves of as much as 600 Bcf in the Fort Laird area of Northwest Territories with a well that could produce up to 100 million cubic feet per day (Mmcf/d). Paramount and Berkeley companies of Calgary hit with an exploration well in the same region that tested at 45 Mmcf/d.

Considerable pipeline capacity increases are expected both within Canada and between Canada and the United States in the next few years, which would significantly increase trade between the two countries. The Canadian Energy Pipeline Association estimates that as much as $14.5 billion will be spent on new and expanded pipelines in the next few years. Five major new natural gas pipeline projects are underway, along with an upgrade on a sixth pipeline. These projects will send an additional 1.1 Tcf of natural gas into the United States annually. Canada currently provides 14 percent of the U.S. natural gas market, but once these projects come online, its total will jump to about 18 percent.

  • The Alliance Pipeline is a $2.5 billion, 1,875-mile pipeline designed to carry 1.3 Bcf/d from western Canada to the Chicago area. It is the longest pipeline ever built in North America, and it is expected to begin operation late this year. Western Canadian gas producers are involved, including Fort Chicago’s Energy Partners, Westcoast Energy and Enbridge. U.S. firms Duke, Williams and Coastal are also part owners. Coastal plans to link Alliance to its ANR pipeline system running into Joliet, Ill.
  • The Millennium Pipeline will primarily follow utility easements from Lake Erie across New York to Westchester County. In many areas it is replacing older Columbia Gas pipelines. Columbia Gas Transmission Corp. along with co-sponsor companies filed a FERC application to construct and operate an underground natural gas pipeline to supply New York, Pennsylvania and other Eastern markets.
  • The Nova Pipeline, built by NOVA Corp. of Calgary, will add 500 Mmcf/d in capacity and connect to the 1998 expansion of the Northern Border pipeline. The Northern Border extension brought 700 Mmcf/d of new capacity to Chicago.
  • The TransCanada Pipeline will add 900 Mmcf/d capacity in the U.S. Midwest.
  • The Maritimes & Northeast Pipeline is a $1.2 billion, 530 Mmcf/d, 660-mile pipeline running from the Sable Island gas field off Nova Scotia to markets in Nova Scotia and New England. Owners include Mobil, Duke Energy Corp., Nova Scotia Power and Westcoast Energy.
  • In September 1999, Canada’s Enbrige natural gas distributing company, won a $300 million, 20-year contract to build and operate a new natural gas distribution system for New Brunswick.