TransCanada proposes to replace the natural gas liquids (NGL) extraction rights convention that is used on the Alberta System (NGTL) with the NEXT model.

The NEXT (NGL Extraction Rights) model is a receipt-based, NGL extraction rights allocation model that provides receipt shippers with a more direct link to the value of the NGL components contained in the gas they transport on the Alberta System. Information on the evolution of the NEXT Model can be found in the Links Section, under NEXT Model Key Dates.

The NEXT model recognizes the diverse gas compositions that enter the pipeline as well as the value of NGL components. It is designed to attract incremental, and retain existing volumes on the Alberta System, resulting in higher throughput and lower tolls for all shippers. The proposed model is relatively simple and cost-effective to implement and will have no impact on the operation of NIT (NOVA Inventory Transfer).

“It’s important for our customers to understand the NEXT model and how they could be affected should the model be approved,” says Steve Clark, Vice-President, Commercial-West, Canadian Pipelines. “We continue to meet with customers to show them how this receipt-based model will affect them and make the Alberta System a more attractive gas transmission system.”

NGL Inquiry Background
The Alberta natural gas and petrochemical markets have evolved significantly since the current convention for NGL extraction rights on the Alberta System was established. This includes the deregulation of the natural gas market, changes to services on the Alberta System, and the development of NIT. These have all contributed to the change in the type and amount of services held by shippers on the Alberta System. However, the convention utilized to determine who is entitled to the value associated with NGL’s contained in natural gas transported on the Alberta System has not changed to reflect the market.

In Decision 2004-006, the Alberta Energy and Utilities Board (EUB) directed the affected parties to resolve inequities of the current extraction rights convention through TransCanada’s TTFP (Tolls, Tariff, Facilities, and Procedures) committee collaborative process. The result of the collaborative process was the NGL Extraction Convention Task Force (NECTF) report that outlined several alternatives but provided no specific recommendation on how to address the perceived inequities. As a result, the EUB established an NGL Inquiry to examine the issues in more detail; one of which is the potential replacement of the convention with the NEXT model.

NEXT Methodology
The NEXT model allocates extraction rights to receipt shippers based on their proportion of the total value of NGL received on the Alberta System. The individual receipt shipper volume of extraction rights is calculated as follows:

To calculate each receipt shipper’s NGL value placed onto the Alberta System, the quantity of each NGL component is multiplied by the market value of that component and the result is summed for all components to determine that shipper’s total NGL value. This value is divided by the total NGL value of all receipt shippers. This ratio becomes the individual receipt shipper’s percentage share of all available extraction rights for the next month. On a daily basis, each receipt shipper’s volume of extraction rights is determined by multiplying the percentage share of extraction rights by the volume of gas flowing to the inlet of all straddle plants.

Moving Forward
We expect the NGL Inquiry final decision to be announced by the end of 2008. If the NEXT model is approved, TransCanada would file for a tariff change and move forward with changes to the existing process including an adapted IT system and the corresponding education for customers.

For further information on the NEXT model, please contact Mark Mulder at 403.920.5333 or your Customer Sales Representative.