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Atlantic Canadian LNG Terminals a Win-Win for Suppliers, Consumers

Liquefied natural gas (LNG) terminals in Atlantic Canada will pay off on both the supplier and buyer sides of the East Coast market, says a study of the industry's emerging new dimension. Increased gas flows are forecast to reduce pipeline tolls and improve the economics of East Coast production developments as well as stabilize the supply outlook for the U.S. Atlantic seaboard.

The study by Calgary's Canadian Energy Research Institute and Petroleum Research Atlantic Canada in Halifax projected effects of terminals under construction at Bear Head in Nova Scotia and Saint John in New Brunswick, and proposed at Cacouna in Quebec and Goldboro in Nova Scotia.

The Bearhead and Saint John projects, costing a total C$1.3 billion (US$1.1 billion), will add 1.5 Bcf/d to Atlantic seaboard gas supplies in 2008. The Cacouna and Goldboro proposals, costing a total C$5.4 billion (US$4.6 billion) because the Nova Scotia scheme includes a petrochemical complex, would expand gas supplies by an additional 2 Bcf/d.

The new gas traffic is projected to cut regional pipeline tolls by about 40% by reviving a dormant plan to nearly double the capacity of the Maritimes & Northeast (M&NE) system into the area of 1 Bcf/d.

The expansion would involve relatively low-cost additions of compressor power that spread costs of the seven-year-old pipeline thinner.

The toll to Boston from Goldboro, the Nova Scotia inlet to Maritimes & Northeast for production from the Sable Offshore Energy Project (SOEP), is forecast to drop to US$0.72/MMBtu from $1.24. For gas dropped off in Canada along the route across Nova Scotia and New Brunswick, tolls are expected to dip to as little as US$0.34/MMBtu from $0.59.

The National Energy Board approved a M&NE expansion about five years ago in anticipation of increases in production offshore of Nova Scotia that failed to materialize. SOEP ran into technical issues that prompted sharp reductions in estimates of its reserves in the Sable Island region. A C$1.1 billion (US$935 million) offshore production project near SOEP, Deep Panuke, has been shelved since owner PanCanadian Energy merged with Alberta Energy Co. to form EnCana Corp. four years ago.

Deep Panuke remains under review by EnCana, whose leadership spent its formative years in some of Alberta's most accessible and prolific gas fields and has been wary since the merger of the rugged, risky conditions offshore of Nova Scotia. The review includes both unknown results of sporadic offshore exploration and long additional looks at the economics of alternative production systems.

The research agencies acknowledged that new LNG terminals might further postpone development of new Atlantic Canadian supplies because importing gas is bound to be easier than building offshore production systems. But that prospect is also described as at least partially offset by increases in producer "netback" prices and profits that will result from the anticipated toll reductions.

The studies predicted Atlantic seaboard markets will eventually be able to use all the projected gas supplies from the Canadian LNG projects and more to boot. Western Canadian supplies have stabilized but show no signs resuming significant overall growth yet as a new coal bed methane industry only begins to replace depleting conventional reserves, while domestic demand is on the rise especially in the booming Alberta oil sands belt.

The combination of flat western supplies, growing Canadian domestic demand and reduced Atlantic seaboard pipeline tolls is also projected to improve long-range prospects of developing stranded reserves offshore of Newfoundland.

Out on the Grand Banks, the Hibernia and White Rose production platforms take only the oil out of large geological formations known also to harbor gas reserves measured in trillions of cubic feet. Methods of tapping the remote gas without laying enormously expensive seabed pipelines have been under intensive engineering study for years. New technology, akin to container shipping, for packing offshore production as compressed natural gas or CNG is emerging as a competitive option for markets up to 2,500 miles away from production sites, the new research studies said.

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