transcanada business model international pipeline conference november 12, 2009
TRANSCRIPT
TransCanada Business Model
International Pipeline Conference
November 12, 2009
2
Agenda
• About TransCanada
• TransCanada’s North America Business Model
• Guadalajara Pipeline Project
3
Natural Gas Pipelines
• 59,000 km (36,500 mi) of wholly owned natural gas pipeline
• Interests in an additional 7,800 km (4,800 mi) of natural gas pipeline
• 250 Bcf of regulated natural gas storage capacity
• Unparalleled connectionsfrom traditional and emerging basins to growing markets
• Average daily volume of approximately 15 Bcf
4
Power Generation
• 19 plants, 10,900 megawatts
• Diversified portfolio consists primarily of:
• Long-term power purchase arrangements with stable, predictable earnings
• Low-cost, base-load generation
• Key power infrastructure assets in attractive markets
5
TransCanada’s History in Mexico
CD Juarez
Nogales
Mexico City
Mérida
Toluca
Tuxpan
Naco
Lázaro Cárdenas
Guadalajara
Altamira
Mayakan Pipeline
El Bajío Pipeline
Manzanillo
Guaymas
Chihuahua
Valladolid
Reynosa
Monterrey
Tijuana
Acapulco
Topolobampo
Mazatlán
Mexicali
Cancun
Pemex Pipeline
Private Open Access Pipeline
Tamazunchale Pipeline
Proposed LNG Terminal
Legend
1998, built the first privately owned pipeline in Mexico, the Energia Mayakan pipeline
1999, built the El Bajio pipeline in Bajio region
2006, built the Tamazunchale pipeline in eastern Mexico
TransCanada’s North American Business Model
7
The Natural Gas Transportation System
Producing Wells
Gathering Lines Transmission Lines
Processing Plant
Compressor Stations
Underground Storage
Large Volume Customer
Regulator/Meter
City Gate (Regulators/Meters)
LNG or Propane/Air Plant
Residential Customers
Commercial Customers
Distribution Mains (Lines)
Large Volume Customers
Source: AGA
8
Natural Gas Value Chain – Considerations of Participants
Producers Marketers Pipelines Local Utility Consumers
Independent, Major
Shell, BP, Exxon, ConocoPhilips
Gas well gasOil well gas
No
Product reserves,Generate cash
Affiliated, Independent
JP Morgan, Encana
Supply aggregation, Logistics management
No
Margin on gas, Margin on services
Interstate, Intrastate
TransCanada
Transportation, Storage
Yes
Fee for service,Return on capital
Investor owned, Municipal
Pacific Gas & Electric, Oneok
Supply aggregation,Transportation
Yes
Fee for service,Return on capital
Type
Example
Price Regulated
Contribution
Objectives
Residential, Industrial, Commercial
Homes, stores, plants
Market for gas,Market for services
No
Secure supply,Minimum cost
9
Natural Gas Value Chain – Activities of Participants
Source: AGA
Producers Marketers Pipelines Local Utility Consumers
• Generate cash flow
• Ensure access to market
• Obtain best price
• Match supplies to market
• Avoid imbalance penalties
• Cost vs benefit of selling further down the channel
• Seasonal arbitrage
• Commodity price risk (hedging)
• Achieve margin (spread)
• Avoid imbalance penalties
• Manage price risks
• Seasonal arbitrage
• Geographic arbitrage
• Profit opportunities in managing risks for others
• Generate transport/storage revenue
• Extract value for service provided (swing)
• Impose discipline on shippers (receipt vs delivery imbalances)
• Account for ownership of gas in pipeline custody
• Optimize system operations
• Commodity sales
• Service obligation
• Supply security/cost
• Transport revenue
• Pipeline/storage capacity access
• Pipeline imbalances
• Imbalances on local distribution company
• Commodity price risk
• Type of service (sale or transport, firm or interruptible)
• Supply security
• Commodity price
• Access to alternatives
• Hedging
• Imbalances
10
Broad Trends – Gas Demand
Demand led by Electric Generation sector
0
10
20
30
40
50
60
70
80
90
100
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Bcf/d
History Forecast
Residential &Commercial
Other
Industrial
Electric Generation
11
Broad Trends – Gas Supply
Domestic North America gas supply to remain strong
0
10
20
30
40
50
60
70
80
90
100
1990 1995 2000 2005 2010 2015 2020
Gulf of Mexico + U.S. Other
WCSB
U.S. Rockies
Eastern Canada
Bcf/d
North
LNG
Mexico
Demand
History Forecast
U.S. Shale
BC Unconv.
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Building for Tomorrow: Developing a Portfolio of Future Growth Opportunities
Our Approach:• Maintain complete analysis of market conditions
• Capitalize on the need for new and more efficient energy infrastructure in North America
• Focus on regions and businesses where we can build genuine competitive advantage
• Carefully select opportunities with long-term upside• Maintain long list of project opportunities• Pursue projects when conditions are right• Negotiate contract structure acceptable to our risk tolerance
13
Building for Tomorrow: Risk / Return Trade off
Required Return• Capital Structure• External Financing• Financial Market situation• Corporate Strength
Project Risks• Construction cost• Contract Term• Counterparty Exposure• Regulatory/Political
14
Track Record of Investing in Attractive Low-Risk Assets
$19 Billion*(1999 – 2008)
* Includes acquisitions and completed greenfield projects
Power – Long-term PPAs /
Capacity Payments$4.7
(45%)
(14%)
(25%)
(11%)
(5%)
Power – Low-cost Base-load
$2.1
U.S. RegulatedPipelines $8.7
CanadianRegulated
Pipelines $2.6
Other$0.9
15
Current Projects
* TransCanada share in CAD dollars. Assumes a US$ to CAD$ exchange rate of 1.1. Approximately $3.5 billion
was spent by the end of 2008 on multi-year projects.
Project
Pipelines Keystone Canadian Regulated U.S. Regulated Bison Guadalajara
Energy Bruce Power Units 1 & 2 (50%) Halton Hills Kibby Wind Cartier Wind Phases 4 – 6 (62%) Coolidge
Capital CostEstimate*($Billions)
13.22.50.70.60.3
17.3
1.70.70.40.40.63.8
21.1
In-Service Date
2010 – 20122009 – 20112009 – 20112010 – 2011
2011
20102010
2009 – 20102010 – 2012
2011
RevenueStream
Contracted and SpotCost of service
Contracted and SpotContracted and Spot
Contracted
Fully contractedFully contracted
Contracted and SpotFully contractedFully contracted
16
Keystone Oil Pipeline
• Approx. US$12 billion
• Keystone 3,456 km
• Gulf Coast Expansion 3,200 km
• Capacity 1,090,000 Bbl/d
• 910,000 Bbl/d committed for an average term of 18 years (83% of total capacity)
• Strong counterparties operating in upstream and downstream segments of the oil business
17
Alberta System
North Central Corridor • 300 km of 42-inch pipe• 26 MW of compression• Approximately $925 million• In-service 2010
Groundbirch Pipeline Project• Commitments for 1.1 Bcf/d by 2014• 77 km 36-inch pipe• Approximately $250 million• Expected in-service Q4 2010
Horn River Pipeline Project• Commitments for 378 MMcf/d in 2013• 155 km combination of NPS 30 and
existing pipe• Approximately $340 million• Expected in-service 2012
18
• 297-mile natural gas pipeline
• 407 MMcf/d contracted
• Initial capacity 400 MMcf/d to 500 MMcf/d
• Future expansion up to 1.0 Bcf/d and extension potential
• Approximately $US610 million
• Connects growing Rockies supply to Northern Border Pipeline with access to Chicago and area markets
• Expected in-service date late 2010
Bison Pipeline
19
Guadalajara Pipeline
• 310 km, 30-inch diameter
• Expected in-service Q2 2011
• Initial capacity 500 MMcf/d
• Future expansion up to 900 MMcf/d
• Approximately US$320 million
• 25-year ship or pay contract with CFE
Tamazunchale Pipeline
• 130 km, 36-inch diameter
• Initial capacity 170 MMcf/day
• Future expansion up to 430 MMcf/day
• In-service late 2006
• 26-year ship or pay contract with CFE
Mexico Assets
TransCanada’s Guadalajara Pipeline
21
Guadalajara Pipeline
• Awarded in May, 2009
• Approximately 300 km in length
• 30” diameter pipeline
• Will deliver up to:
• 500 MMcf/d of natural gas to
CFE’s Manzanillo power plant;
• 320 MMcf/d of natural gas to
the Pemex system near
Guadalajara
• In-service: March 2011
22
Project Summary
• The pipeline project is part of a larger energy infrastructure program
undertaken by CFE
• LNG Supply acquisition (2007) (supplies from Peru)
• LNG Regasification (2008) (owned by Korea Gas and Mitsui)
• Refurbishment of Manzanillo Power plant to natural gas (CFE)
• Gas for new power plants in Guadalajara and for power generation in
central Mexico (through the Pemex pipeline)
• Pipeline linking LNG terminal to power plant and Pemex pipeline system
• The overall program will
• Serve Mexico’s growing electric demand
• Diversify Mexico’s natural gas supply
• Improve efficiency of CFE’s power generation
• Ensure natural gas supply in Central and Western Mexico
23
CFE Multi-Phase ProgramLNG Terminal
• To guarantee the future supply of natural gas to thermoelectric power
plants through means of purchasing liquefied natural gas (LNG). This
LNG will be stored and regasified in a newly constructed Storage and
Regasification Terminal in the state of Colima.
24
CFE Multi-Phase ProgramManzanillo Power Plant Upgrade
• Upgrade and improve the thermoelectric power plant in Manzanillo
25
CFE Multi-Phase ProgramGuadalajara Pipeline
• Transport natural gas from the Storage and Regasification Terminal
through the construction of the Guadalajara Pipeline
• This gas pipeline links natural gas between the states of Colima and
Jalisco, and also increases the security of natural gas supply to
Central and Western Mexico
26
Project Timeline – Key Dates
LNG Gas Supply Contract September 28, 2007
LNG Regasification Contract Awarded March 7, 2008
Guadalajara Pipeline
CFE ITB Issued October 14, 2008
Bid Submission April 14, 2009
Contract Award May 4, 2009
Contract Execution May 20, 2009
Construction Commencement Q1, 2010
Target Completed Q1, 2011
Commercial In-service March 30, 2011
22 months from date of contract to commercial operations
27
Guadalajara PipelineConstruction Challenges
Congested Rights of Way• Fibre optics• Overhead power lines• Highways• Urban structures
28
Guadalajara PipelineConstruction Challenges
Difficult construction areas with limited alternatives to reroute
29
Guadalajara PipelineConstruction Challenges
Difficult crossings of canyons and gorges
30
Guadalajara PipelineConstruction Challenges
Anticipating future highway expansion plans
31
Guadalajara PipelineConstruction Challenges
Working in and around environmental protected areas
32
Guadalajara PipelineConstruction Challenges
Active nearby volcanic and seismic activity
33
TransCanada’s Formula for Success
• Long History of Construction
• Experienced Project Teams
• Extensive database of past projects including costs, risk variables
• Well developed project
management tools and
expertise
• Strong supplier and contractor base
Disciplined Approach to Business
• Market Intelligence
• Risk Analysis
• Comprehensive Due Diligence
• Financial Structuring