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Maritimes Opens Door to New LNG Supply

Maritimes & Northeast Pipeline started an open season process last Tuesday to test the market for a possible expansion. The expansion would be designed to bring new gas supply potentially from offshore development and from liquefied natural gas (LNG) import terminals planned in Atlantic Canada to markets in eastern Canada and the northeastern United States. The open season ends March 31.

Maritimes canceled its Phase IV expansion project last year after EnCana decided that its 400 MMcf/d Deep Panuke discovery offshore Nova Scotia would not support a 20-year pipeline transportation agreement. However, analysts say EnCana is still in talks with the Sable Offshore Energy Project (SOEP) producers to possibly utilize some of their pipeline facilities. There also may be some economic efficiencies on pipeline capacity from having the numerous LNG terminals being planned in the region.

About 4.5 Bcf/d of new LNG supply is planned in the region by about six proposed terminals, one of which has been approved by regulators:

"Atlantic Canada and New England would greatly benefit from LNG terminal development as an additional source of natural gas supply, which will be helpful in securing the region's future energy needs," said Maritimes President Doug Bloom.

Rob Whitwham, director of marketing and business development for Maritimes, said the pipeline company wants to "find out just who is ready to go and who is just sort of kicking the tires at this point." He said the company has received a number of inquiries from LNG planners. It also would like to find out more from offshore developers.

"We are not sure what EnCana's plans are with Deep Panuke or what Marathon's plans are with [the deepwater] Annapolis [project]," he said. "The Sable offshore partners also have some things that they are working on so we are just trying to test the waters here and see who is ready to go."

Whitwham noted that EnCana has been attempting to enhance the viability of Deep Panuke. "Perhaps they are ready to go with this expansion. In the open season we have asked for some fairly time-specific demonstrations of viability."

Whitwham said Maritimes could add 600-700 MMcf/d of capacity through compression alone. There currently is no compression on the Canadian portion of the system. The pipeline has long term contracts for 555 MMcf/d of firm capacity in Canada and 360 MMcf/d in the United States. Another 40 MMcf/d is under short-term contract in the U.S. The Canadian line currently could transport about 600 MMcf/d, while the U.S. portion could carry about 450 MMcf/d, said Whitwham.

However, Sable supply has been disappointing in recent years. Shell cut its Sable reserves by about 670 Bcf last year and production has declined from an early peak.

There have been "more positive signs lately as they have brought on a couple of new wells," Whitwham said. "We've seen the volume creep up lately. There has been an uptick as a result of the South Venture field coming online. It's partially online now. I think there also are some other things they can do in terms of optimizing the previous wells. We may see that in 2006." An additional 125 MMcf/d of Sable production is expected to come from the South Venture field early this year, according to Lehman Brothers.

"But [the Sable Offshore Energy Project is] nowhere near where they were early on," said Whitwham. "They were actually producing more early on than the contracted amount (555 MMcf/d). Now they are somewhere around 410-415 MMcf/d, way short of where they were. I don't know that they will ever get back to the glory days, but I think that is much a function of whether there is a deal with EnCana or potentially with Marathon."

With six proposed LNG terminals in the region, offshore producers could find lower rates for transportation capacity depending on the number of shippers that sign up for new space, the amount of capacity they put under contract and the delivery points selected.

Thanks to Maritimes' Phase III expansion two years ago, the Boston area is now a major direct destination. Phase III went into service in December 2003, extending Maritimes about 25 miles to Algonquin's HubLine system in Beverly, MA. The extension provided about 230 MMcf/d of capacity but Maritimes' U.S. mainline remained at 400 MMcf/d.

For more information about the Maritimes open season, contact Whitwham at (902) 425-0628. Maritimes is owned by affiliates of Duke Energy (77.53%), Emera Inc. (12.92%) and ExxonMobil (9.55%).

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