TransCanada Locked in Bidding War With 3 Companies : Firm Seeks U.S. Natural Gas Pact

NEW YORK —  TransCanada Pipelines is in a heated race with American pipeline competitors to capture a lucrative stake in the U.S. natural gas market.

TransCanada, Canada’s main natural gas transmission company, is bidding on a contract to sell 1 billion cubic feet of gas a day to four California heavy oil producers and promoting a $1.2-billion project to supply gas to the Northeast.

The Toronto gas transporter is poised to cash in on the Canadian government’s decision to increase gas exports to the United States and to set prices based on market forces.

“The new government is taking a much more aggressive stance on exporting energy as being a good thing for the Canadian economy,” said TransCanada President Radliffe R. Latimer.

“This government obviously is ready to meet the price competition,” said Neil Nichols, the company’s chief financial officer. “The old government’s pricing policy was designed to reserve gas for the future.” TransCanada is locked in a bidding war with three U.S. pipeline companies on a proposal to provide up to $3 million in daily gas sales to Texaco, Shell, Chevron and Mobil, which have been producing 800,000 barrels a day of heavy oil around Bakersfield since 1982.

The companies need long-term supplies of gas to generate steam used to recover the heavy oil from reservoirs. Since the producers now burn 200,000 barrels a day of their own production to make the steam, substituting gas could raise their output significantly.

TransCanada has formed a 50-50 partnership with Lear Petroleum in Dallas in the hope of winning Federal Energy Regulatory Commission approval to build a 383-mile pipeline from the Arizona border to Bakersfield.

TransCanada would deliver gas to the heavy oil producers by taking over Midwestern and Northwestern contracts for suppliers that would move gas directly via the new pipeline to Bakersfield.

But TransCanada is far from a shoo-in on the potential California bonanza.

Pacific Gas and Electric, the utility giant based in San Francisco, has offered to reduce its gas rates and to buy 50% of the gas required by the California producers from its Canadian subsidiary.

Texas’ El Paso Natural Gas has submitted a competing proposal to FERC, and Utah’s Northwest Pipeline is expected to enter the ring with still another bid.

The Canadian firm has an ace in the hole, however.

“TransCanada has a reserve life of 35 years compared to seven to eight years for U.S. interstate pipeline systems,” Latimer said.

The Toronto company also is jockeying for position in the energy-deficient Northeast, which is seeking alternatives to high-cost oil imports.

In 1984, Canada’s National Energy Board approved gas exports of 10.93 million cubic feet a day to the Northeast and is considering a request from U.S. buyers for another 6.7 million cubic feet daily.