UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
___________
FORM
8-K
CURRENT
REPORT
Pursuant
To Section 13 or 15(d) of the Securities Exchange Act of 1934
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Date
of Report (Date of earliest event reported)
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November
4, 2009
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TC
PipeLines, LP
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(Exact
name of registrant as specified in its
charter)
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Delaware
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000-26091
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52-2135448
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(State
or other jurisdiction
of
incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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13710
FNB Parkway
Omaha,
Nebraska
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68154-5200
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code
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(877)
290-2772
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(Former
name or former address if changed since last
report)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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¨
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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¨
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17
CFR 240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17
CFR 240.13e-4(c))
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Item 7.01 Regulation
FD Disclosure.
In
connection with a scheduled meeting on November 4, 2009, between
TransCanada Corporation (“TransCanada”) and certain Canadian shippers on its
Canadian mainline system, TC PipeLines, LP is providing the following
update.
TC
PipeLines, LP (the “Partnership”) owns a 46.45 per cent general partner interest
in Great Lakes Gas Transmission Limited Partnership (“Great Lakes”). The other
53.55 per cent partner interest in Great Lakes is owned by
TransCanada. The general partner of TC PipeLines, LP is TC PipeLines
GP, Inc., a wholly-owned subsidiary of TransCanada.
Great
Lakes has approximately 830 thousand dekatherms per day (MDth/d) of longhaul
capacity under contract expiring on October 31, 2010 with its largest
shipper, TransCanada. On November 3, 2009 Great Lakes and TransCanada
renewed contracts for one year for 470 MDth/d of capacity, some at a slight
discounted rate, and agreed to provide other transportation services. The
remaining approximate 360 MDth/d of capacity will expire October 31, 2010.
Great Lakes will post the expiring capacity for shipper interest in early
2010.
Great
Lakes receives natural gas from TransCanada at the Canadian border near Emerson,
Manitoba, and its pipeline extends across Minnesota, Northern Wisconsin and
Michigan, and redelivers gas to TransCanada at the Canadian border at Sault Ste.
Marie, Michigan and St. Clair, Michigan. Great Lakes also connects to
strategic storage centers in Michigan. Great Lakes serves the Midwest and
Northeastern markets in the United States and the Eastern Canadian
market.
Set forth
below is an updated discussion of the factors that impact the business of
interstate natural gas pipeline systems.
FACTORS
THAT IMPACT THE BUSINESS OF GREAT LAKES
Pipeline
systems provide natural gas transportation services to their customers. Key
factors that impact their business are the supply of and demand for natural gas
in the markets in which pipeline systems operate; the customers of pipeline
systems and the mix of services they require; competition; and government
regulation of natural gas pipelines.
Supply
and Demand of Natural Gas
Great
Lakes provides customers with natural gas transportation services to market
demand areas and access to strategic storage centers. Great Lakes depends upon
the continued availability of natural gas production and reserves from the
Western Canadian Sedimentary Basin (“WCSB”). The “Net WCSB Flows to Markets” is
the supply of and demand for WCSB natural gas that is available for
transportation to downstream markets; where supply represents WCSB production
adjusted for injections into and withdrawals from WCSB storage. Net WCSB Flows
to Markets are dependent upon natural gas production levels, demand for natural
gas in Western Canada, storage capacity for Western Canadian natural gas and
demand for storage injection. The Net WCSB Flows to Markets were 1.2 billion
cubic feet per day (Bcf/day) lower in the third quarter of 2009 compared to the
same period in 2008, due primarily to a decrease in production which was
slightly offset by a reduction in net injections into Western Canadian
storage.
2
Decreased
demand in North America related to the economic environment, combined with
increased production from U.S. shale plays and high levels of natural gas in
storage have resulted in a supply/demand imbalance, which has contributed to
weaker commodity prices for natural gas over the last year and are expected to
continue into 2010. These low commodity prices have resulted in reductions in
exploration and development activity for natural gas as well as some levels of
voluntary production curtailments in the WCSB. Decreases in WCSB production are
expected to continue throughout the remainder of 2009 and into 2010 mainly
related to the low commodity price environment.
Strengthening
of the North American economy, decreased natural gas inventories as a result of
reduced production levels and cold winter weather causing increased heating
related demand, are factors that would positively affect natural gas
prices.
Western
Canadian natural gas in storage is currently at a five year high. U.S. working
gas storage levels are also at record high levels. The summer is traditionally a
storage injection period. However, due to the high levels of natural gas already
in storage at the beginning of the storage injection season, lower amounts of
gas were injected over the third quarter compared to levels seen in previous
years. Normally, lower levels of injection into Western Canadian gas storage
results in more WCSB gas available for export; however, this has been offset by
less WCSB production. The high U.S. gas storage levels are negatively impacting
the demand for natural gas in the market areas that storage serves, as well as
impacting demand for transportation services related to storage injection. High
overall storage levels have a dampening effect on natural gas prices which in
turn reduces ongoing production.
Factors
which may mitigate declining WCSB production in the future include strengthening
gas prices which will support continued exploration and development of new
fields in Western Canada by WCSB natural gas producers. Over the long term, we
expect WCSB natural gas producers will direct significant activity at
unconventional resources such as coal bed methane and shale gas. Additional
Canadian natural gas supply sources may be available in the future if new
pipeline projects associated with the Montney and Horn River shale gas regions
in Western Canada are constructed, and the longer term potential associated with
the proposed development of the Mackenzie Delta in Northern Canada and the North
Slope of Alaska.
Factors
which may impact the overall demand for natural gas include weather conditions,
economic conditions, government regulation, availability and price of
alternative energy sources, fuel conservation measures, and technological
advances in fuel economy and energy generation devices. Although demand for
natural gas is expected to continue to decline in North America through the
remainder of 2009 and into 2010 with the current economic downturn, we expect a
demand increase in the long term. In certain sectors, such as the electric
generation sector, lower natural gas prices have resulted in a competitive
advantage for this fuel option and a resulting increase in demand for natural
gas in this sector.
Demand
for natural gas transportation service on Great Lakes is directly related to the
activity in the natural gas markets served by it. Factors that may impact demand
for transportation service on Great Lakes and our other pipeline systems include
the ability and willingness of natural gas shippers to utilize one system over
alternative pipelines, relative transportation rates, and the volume of natural
gas delivered to markets from other supply sources and storage facilities. The
impact of changes in demand for natural gas transportation services on operating
revenues for Great Lakes and our other pipeline systems is dependent upon the
extent to which capacity has been contracted under long-term firm
contracts.
3
Net WCSB
Flows to Markets is one of the factors which impacts throughput on our Great
Lakes system. The other important factor impacting throughput is the activity in
the natural gas markets served by our pipeline systems. We cannot predict the
impact of any continued declines in Net WCSB Flows to Markets and uncertain
market conditions are expected to continue to affect throughput for the
remainder of 2009 and into 2010.
Throughput
on the Great Lakes pipeline system in the third quarter of 2009 (average 1,622
MMcf/d) was lower compared to the same period in 2008 (average 2,122 MMcf/d).
The lower volumes in 2009 are due mainly to underutilization of long-term firm
contracts related to the early fill of storage during the traditional summer
storage-fill season, and lower power generation demand due to mild summer
weather, and decreased overall demand related to the economic environment. The
underutilization of the long-term firm contracts was somewhat offset by daily
sales of capacity. Decreases in throughput related to underutilization of firm
contracts have a minimal impact on revenue. If the level of firm contracts
decreases a larger proportion of Great Lakes’ revenues are generated by shorter
term contracts. Great Lakes may experience increased volatility in
revenues as a result of changes in throughput.
Customers
and Contracting
The
reduced level of Net WCSB Flows to Markets has resulted in an environment in
which the pipeline capacity serving the WCSB exceeds demand. In this
environment, there is little incentive for shippers to make long term
commitments for capacity and the trend towards shorter term contracts is
expected to continue for Great Lakes. As well, there may be increased
seasonality with respect to pipeline throughput and revenues.
Prevailing
market conditions and dynamic competitive factors in North America, particularly
lower Net WCSB Flows to Markets, increased supply from other supply basins to
Great Lakes’ market area from other supply sources, and the current economic
conditions affecting the demand for natural gas, will continue to impact the
value of transportation on Great Lakes and its ability to market available
capacity.
Great
Lakes’ average contracted capacity was 103 per cent of its design capacity for
the third quarter of 2009 compared to 92 per cent for the same period last year.
At September 30, 2009, 94 per cent of its average design capacity was
contracted on a firm basis for the remainder of the year and the weighted
average remaining life of firm transport contracts was 1.9
years. Substantially all of the firm contracts in place at
September 30, 2009 are in place until October 31, 2010.
Great
Lakes has approximately 985 MDth/d of longhaul capacity expiring on
October 31, 2010, of which approximately 830 MDth/d is contracted with
TransCanada. On November 3, 2009 Great Lakes and TransCanada renewed
contracts for one year for 470 MDth/d of capacity some at discounted rates and
to provide other transportation services. TransCanada has elected to turn back
approximately 360 MDth/d as of October 31, 2010. Great Lakes will actively
market and post any expiring capacity for shipper interest in early 2010. Great
Lakes may discount transportation capacity as needed to optimize
revenue.
4
Competition
Great
Lakes competes primarily with other interstate and intrastate pipelines in the
transportation of natural gas. Changes in North American gas flow patterns are
expected as a result of recent and proposed pipeline projects which are changing
the supply competition in the markets served by Great Lakes. Additionally,
supply competition from other natural gas sources can impact demand for
transportation on pipeline systems. Growth in supplies available from other
natural gas producing regions can impact prices for natural gas delivered to
some of the markets Great Lakes and our pipeline systems serve relative to other
market regions.
As the
pipeline capacity serving the WCSB exceeds demand currently, there is
competition for Net WCSB Flows to Markets. Factors impacting the competition for
Net WCSB Flows to Markets includes the level of firm transportation contracts on
each pipeline, demand for natural gas in the regions served by each pipeline,
and relative transportation values on each pipeline. In the short term, factors
impacting Great Lakes’ ability to compete for Net WCSB Flows to Markets includes
high natural gas storage levels in Eastern Canada, Michigan and California and
the availability of alternative supplies to these markets.
The
Rockies Express Pipeline has introduced new gas supplies from the Rockies
natural gas basin into the markets served by Great Lakes. The Eastern segment of
the Rockies Express Pipeline (REX East) was placed into interim service on
June 29, 2009 to Lebanon, Ohio and full in-service of REX East to
Clarington, Ohio is scheduled for November 2009. Additionally, two new
pipeline projects transporting volumes from the lower Mid-Continent east to the
existing Gulf Coast pipeline infrastructure went into service in the second
quarter of 2009. These pipelines transport volumes from the lower Mid-Continent
east to existing pipelines that can deliver this supply to the Midwest market
area, Eastern U.S. market area, or to the Gulf market depending on
demand.
The
additional supply delivered to Eastern markets has caused and is expected to
continue to cause natural gas formerly delivered to Eastern markets to be
delivered into the Chicago market area, which has increased supply in Great
Lakes’ market region. However, there may also be opportunities for
Great Lakes to market its Eastern zone services.
Increased
supply in the Midwest markets served by Great Lakes as a result of changed
pipeline flows has resulted in downward pressure on prices in this region.
Additional supply in the Michigan market may impact Great Lakes’ ability to
renew contracts with its customers and market expiring capacity.
5
FORWARD-LOOKING
STATEMENTS
The
statements in this report that are not historical information, including
statements concerning plans and objectives of management for future operations,
economic performance or related assumptions, are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act. Forward-looking statements may include
words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”
“believe,” “forecast” and other words and terms of similar meaning. The absence
of these words, however, does not mean that the statements are not
forward-looking.
These
statements reflect our current views with respect to future events, based on
what we believe are reasonable assumptions. Certain factors that could cause
actual results to differ materially from those contemplated in the
forward-looking statements include:
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the
impact of unsold capacity on Great Lakes being greater or less than
expected;
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competitive
conditions in our industry and the ability of Great Lakes, to market
pipeline capacity on favorable terms, which is affected
by:
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o
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future
demand for and prices of natural
gas;
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o
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level
of natural gas prices at market trading
hubs;
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o
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competitive
conditions in the overall natural gas and electricity
markets;
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o
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availability
of supplies of Canadian and United States (U.S.) natural gas, including
newly discovered natural gas developments such as the Horn River and
Montney shale gas developments in Western Canada, U.S. Rockies and U.S.
Mid-Continent shale gas developments, and the Marcellus shale gas
developments;
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o
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competitive
developments by Canadian and U.S. natural gas transmission
companies;
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availability
of additional storage capacity and current storage
levels;
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o
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level
of liquefied natural gas imports;
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o
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weather
conditions that impact supply and demand;
and
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o
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ability
of shippers to meet credit worthiness
requirements;
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·
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changes
in relative cost structures of natural gas producing basins, such as
changes in royalty programs, that impair the development of the Western
Canada Sedimentary Basin (WCSB);
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the
decision by other pipeline companies to advance projects which will affect
our pipeline systems and the regulatory, financing and construction risks
related to construction of interstate natural gas pipelines and additional
facilities;
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performance
of contractual obligations by customers of our pipeline
systems;
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the
severity and length of the current economic downturn, which
impacts:
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o
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the
debt and equity capital markets and our ability to access these
markets;
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the
overall demand for natural gas by end users;
and
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o
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natural
gas prices
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6
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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TC
PipeLines, LP
by: TC
PipeLines GP, Inc.,
its
general partner
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By: /s/
Donald J.
Degrandis
Donald J.
DeGrandis
Secretary
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Dated: November
4, 2009
7