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TransCanada to bolster natural gas shipping business amid surging shale output

TransCanada Corp. will boost its North American natural gas-transporting capability in the coming years as booming shale production lifts demand.

The company's C$2.4 billion plan to increase capacity on its Nova Gas Transmission Ltd., or NGTL, natural gas gathering system will give shippers increased access to markets in Central Canada, along with the U.S. West and Midwest, CEO Russ Girling said on a conference call. Expansion of TransCanada's gas-transporting system in the Midwest could also give producers in the Western Canadian Sedimentary Basin, which includes the prolific Montney and Duvernay shales, access to markets in the U.S. East and Gulf Coasts.

TransCanada's C$23 billion portfolio of growth projects includes more gas transportation amid an undecided future for its Keystone XL oil pipeline and the cancellation of the Energy East crude system in Canada. While the company received adequate shipper support for Keystone XL, it still has not made a final decision to build the project. TransCanada took a C$954 million charge for Energy East in the fourth quarter.

"We remain bullish on the Western Canadian Sedimentary Basin's ability to continue to grow and gain market share," Girling said on the Feb. 15 call. "Connecting that new growing production from those emerging shale plays from wellhead to market will require additional infrastructure. Evidence of that could be seen this morning when we announced that we intend to invest an additional [C]$2.4 billion in a 2021 expansion program on the NGTL System. It will allow us to connect incremental supply of about 620 MMcf/d to the system and expand NGTL export capacity by about 1 Bcf/d at East Gate where the system connects with the Canadian Mainline."

The expansion, which boosts the company's ability to transport gas out of Alberta and British Columbia, comes on the heels of a 2017 offering of deeply discounted pipeline space that saw the company gain almost 1.5 Bcf/d of long-term transportation contracts on its Canadian Mainline system. The NGTL expansion is underpinned by long-term contracts, with construction expected to start in 2019 pending regulatory approvals.

"When added to our existing expansion program, we now have contracted to build about [C]$7.2 billion of new infrastructure on the NGTL Systems through 2021," Girling said. "Once completed, the series of expansions will provide 2.2 Bcf/d of incremental capacity — delivery capacity on the system — including 550 MMcf/d to enter Alberta markets, 650 MMcf/d to the West Gate, where it will connect with our GTN system and move to the Pacific NorthWest in California markets, and 1 Bcf/d to East Gate."

The company still anticipates starting construction of Keystone XL in 2019. Although the conduit linking the oil sands hub of Hardisty, Alberta, with other TransCanada oil pipelines in Steele City, Neb., still faces some legal challenges, one of the main remaining hurdles to a final investment decision on the line is acquiring land access for the modified route through Nebraska that was approved by state regulators.

SNL Image

Workers at TransCanada's Cushing, Okla., facility, which is part of its Keystone pipeline network.

TransCanada Corp. photo

Since a November, 2017 rupture on the existing Keystone system in South Dakota the company has been operating the line at reduced pressure. Paul Miller, head of TransCanada's liquids pipeline segment, said the lower throughput had a "modest effect" on crude flows and did not materially impact the Keystone system's financial results.

The company also plans to bolster its U.S. natural gas network to take advantage of growing U.S. shale production.

"We expect our Columbia system to continue to generate organic growth opportunities as natural gas production in the Marcellus continues to grow to approximately 30 Bcf/d by 2020," Girling said. "We also continue to look at additional opportunities across the broader U.S. natural gas pipeline portfolio, including our ANR, GTN, Great Lakes, Northern Border, Iroquois and Portland Natural Gas Transmission systems, which are all experiencing opportunities for growth."

Separately on Feb. 15, TransCanada reported fourth-quarter 2017 comparable earnings of C$719 million, or 82 Canadian cents per share, an increase from C$626 million, or 75 Canadian cents per share, in the year-ago quarter. The S&P Global Market Intelligence consensus normalized EPS estimate for the fourth quarter was 75 Canadian cents.