Firm Transportation Contracts: When They Expire - A Five-Step Primer for Pipeline Shippers

Fortnightly Magazine - March 1 2000
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An interview with David A. Boger, Stephen D. Moritz and Joseph G. Baran of Strategic Energy Ltd.

The expiration and renegotiation of firm transportation contracts on the pipelines in North America is becoming increasingly complex. For example, TransCanada Pipeline ("TransCanada") in the past consistently renewed its expiring contracts for five- to 10-year periods at maximum rates. It also regularly expanded its capacity, requiring 10-year commitments two years in advance of availability. However, over the last few years rising gas prices in Alberta and the construction of competing projects have squeezed TransCanada. These events have increased the risk of capacity turn-back and created more competitive options for shippers.

We contacted three gas account managers at Strategic Energy Ltd. and asked them to comment on today's market in gas transportation contracts. How do these types of events affect you as a firm shipper? Will you have more or less leverage when your contract expires? How do you even assess your options?

NOTICE OF TERMINATION

How to React, What to Expect?

A shipper that receives a notice of contract termination out of the blue from an interstate natural gas pipeline is already a step behind. Typically, the termination notices must be provided six months to one year in advance of the expiration date. And some contracts have termination provisions that will automatically extend the contract for as much as five years if a termination notice is not given. So planning should have begun a lot earlier - at least six months prior to the notice deadline.

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