Part One of the NIT article series.

From a simple mechanism intended to balance customers’ accounts to a commercial marketplace that provides over 50 Bcf/d of natural gas liquidity, NIT is an essential business tool for TransCanada’s customers. NIT, which is an acronym for NOVA Inventory Transfer, is the engine of what, some would say, is North America’s largest natural gas trading point. As Alberta’s natural gas hub, NIT directly enables access to TransCanada’s extensive downstream pipeline infrastructure and provides an attractive gateway for future Mackenzie and Alaska gas to access multiple markets throughout North America.

In Part One of the series, we will provide you with the background and evolution of NIT.

The History of NIT

Throughout the latter half of the 80's, the role of the aggregators diminished and there was a significant increase in the number of shippers transporting gas out of the Western Canadian Sedimentary Basin. Concurrent with this evolution was a move to how gas was marketed from a longer term nature to shorter term. Prior to the introduction of inventory transfers on TransCanada’s Alberta System, customers were faced with significant account adjustments due to month-end supply re-allocations or unexpected inventory changes.

In 1990 and 1991 TransCanada’s Alberta System experienced a number of extended supply imbalances as a result of severe winter weather that resulted in delivery curtailments at the Empress border. Consequently NOVA Gas Transmission Ltd. (NGTL) introduced daily gas balancing in December of 1992 which required our customers to adjust their supply or markets to balance their accounts on a daily basis.

Alberta storage operators found that they were receiving calls from numerous shippers simultaneously wishing to put gas into and take gas out of storage in order to manage their transportation imbalances. Alberta Energy Company (now part of EnCana) decided to offer a fee-based Title Transfer Service at their AECO-C storage facility at Suffield in south east Alberta. As parties and counterparties utilized AEC’s Title Transfer Service to buy and sell gas, the AECO-C location quickly established itself as the point at which the benchmark Alberta price was established.

However, with the introduction of no-charge inventory transfers (or title transfers) in the summer of 1993, TransCanada customers were able to balance their accounts by trading gas on the system; those customers with a positive balance could trade with other customers who were in a negative inventory position. Since a customer would be either long or short, a one-way transfer was all that was required.

By November of 1993, industry feedback encouraged several important changes to inventory transfers:

• Title transfers became bi-directional
• Timing was enhanced to allow changes at four hour intervals
• Title transfers became known by all as NOVA Inventory Transfers (NITs)

These changes enabled the inventory transfer process to springboard from being purely a customer specific balancing mechanism to become the commercial mechanism through which gas on TransCanada’s Alberta System is traded. As the following diagram illustrates, NIT is more than a just a gas trading point, but acts as a transportation hub providing receipt gas with access to multiple downstream markets.

Today, NIT is an essential business tool for our Alberta customers. “NIT has made our customers’ day-to-day business a lot more fluid as well as allowing more efficient use of their transportation without any additional charge.” Says Bill Webb, Manager, Customer Service, TransCanada

The terms AECO, NIT and, increasingly, Alberta Hub are used interchangeably to refer to the Alberta gas price and Alberta pricing point. Many in industry, including the major industry publications such as Gas Daily, still refer to the WCSB market price as AECO (or the AECO-C Alberta Hub or TCPL Alberta AECO C). As mentioned above, the name AECO-C stems from AEC’s storage facility at Suffield in southeast Alberta … and the name lives on today, often embedded as a legal term in commercial agreements as a reference to the Alberta natural gas price. While the Suffield storage facility still exists, the term AECO no longer reflects the point at which Alberta gas pricing is determined. The actual point at which Alberta gas pricing is determined is NIT, which is a notional point on TransCanada’s Alberta System. And, given that NIT is the engine that drives the huge number of transactions and provides the flexibility for Alberta System customers to direct gas to multiple markets, NIT truly is Alberta’s natural gas hub.

Earlier this year, TransCanada rolled out our new Toll Calculator on Customer Express. The Toll Calculator recognizes NIT as Alberta’s natural gas hub, and provides a one-stop point and click tool for customers to calculate transportation costs from NIT to any point on TransCanada and its affiliated pipeline infrastructure in North America. If you haven’t already checked out the new Toll Calculator on Customer Express, click here to find out more!

Says John Dunn, TransCanada Sales Manager, “NIT is a great example of how TransCanada and customers embraced relatively simple changes in a service attribute to make business easier, and grew it into a natural gas trading and transportation hub that is extremely valuable to TransCanada customers and, indeed, to the North American natural gas marketplace.”

For more information on the Alberta System and how NIT facilitates Alberta’s growing natural gas hub, please contact John Dunn at 403.920.5566.

Part Two: NIT’s role as a platform for an efficient and transparent electronic trading function will be discussed in next month’s Update. NGX and NIT at 50 Bcf/d: facilitating liquidity five times greater than the physical market - an interview with Peter Krenkel, President, Natural Gas Exchange [NGX].