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Alberta gas producers propose limiting output in return for royalty credits
ALBERTA
A number of natural gas production companies have made a proposal to the provincial govern- ment to limit output voluntarily in exchange for royalty credits in an attempt to prop up the strug- gling gas industry. e suggestion comes as oil producers are seeking an end to mandatory out- put curtailments imposed on them by Alberta.
The Financial Post reported that five gas producers – Encana, Tourmaline Oil, Jupiter Resources, NuVista Energy and Peyto Explora- tion and Development – as well as pipeline oper- ator TC Energy had been meeting provincial government representatives since the beginning of the year. e meetings are aimed at guring out how the provincial gas industry can over- come its current woes.
e Financial Post noted that a range of issues had been covered in the talks. One of the biggest and most contentious has been the question of how to resolve a two-year ght between the gas producers and TC Energy over how the pipeline rm allocates space on its Nova gas system when certain pipelines are down for maintenance. TC Energy, formerly known as TransCanada, is the largest gas pipeline operator in the region.
The producers have blamed swings in the AECO benchmark gas price on the fact that TC Energy limits their access to storage during maintenance. ey have argued that this also results in lower, or unpredictable, gas royalties for Alberta.
Indeed, the AECO fell into negative territory on June 20, with producers having to pay spot market customers an average of CAD0.11 per gigajoule ($2.10 per 1,000 cubic metres). is was attributed to TC Energy having limited access to the Nova system owing to maintenance.
The conflict has lasted months, but now the producers and TC Energy appear to have come to an agreement. e Financial Post cited sources familiar with the matter as saying that a proposal has been put forward that would allow producers to voluntarily cut production during maintenance periods on TC Energy’s pipelines in exchange for royalty credits.
“ ese changes will result in an improved line of sight, especially for natural gas produc- ers to plan their capital programmes, thereby increasing future employment and investment in Alberta,” Advantage Oil and Gas’ CEO, Andy
TC Energy, for its part, is spending CAD1.5bn ($1.1bn) to expand the Nova system and alleviate capacity constraints.
Mah, said. He added, however, that the plan was not a curtailment on output.
e Alberta government has said it is moving to assess the plan, though there are concerns that it is not happening quickly enough.
“We are evaluating a variety of options for natural gas, all of which are aimed at minimising price volatility and restoring con dence in our industry. At this stage, we won’t close any doors on our e orts to revitalise Alberta’s natural gas sector and get a fair price for our resources,” Alberta’s Associate Minister of Natural Gas, Dale Nally, told the Financial Post. He added he understood that there was a “sense of urgency” to nding a way forward.
TC Energy, for its part, is spending CAD1.5bn ($1.1bn) to expand the Nova system and allevi- ate capacity constraints. e company has said it will add 3.2bn cubic feet (9mn cubic metres) of gas capacity to the system by the end of 2021 under additional expansion phases.
But like oil producers, gas drillers in Alberta are divided on how to revive their industry, with some also advocating mandatory gas output curtailments across the board. Others, mean- while, oppose any government intervention in production.
TC Energy has not con rmed whether it has agreed to support the proposal put for- ward by the group of producers for voluntary curtailments during periods of maintenance. However, the pipeline operator said it would “continue to have productive dialogues with the government of Alberta and with broader industry participants” on ways to support and revive the gas industry.™
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