By: Nigel Bankes
PDF Version: The Synthetic Transportation of Natural Gas
Case Commented On: Apache Canada Ltd v TransAlta Cogeneration LP, 2015 ABQB 650
In this decision Master Robertson concluded that the synthetic transportation of natural gas through a series of swap arrangements does not trigger the seller’s right of first refusal in a natural gas sales contract so as to allow the seller to re-acquire the gas, or that volume of gas, at the contract price and re-sell for its own account at the market price.
Apache agreed to sell natural gas to TAU for the specific purpose of fueling a cogeneration facility in Windsor, Ontario (the Windsor facility). The point of sale (i.e. where TAU took delivery of the gas) was Empress, Alberta. The contract had a 15-year term commencing in 1996. At that time, natural gas prices were depressed and Apache agreed to accept a fixed price with an escalation clause rather than a price determined by reference to an evolving spot market. Both parties clearly contemplated that TAU, having taken delivery of the gas at Empress, would transport that gas to its Windsor facility using TransCanada’s mainline and Union Gas’s facilities in Ontario. Indeed, the contract required TAU to arrange take-away pipeline capacity through agreements with “Buyer’s Transporters” (s.9.03) that were (at para 39):