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Nova Scotia Could Use A Straw in the Marcellus, Consultant Says

Maritimes Canada natural gas consumers should consider taking up to 600 MMcf/d of firm pipeline capacity from the Marcellus Shale to ensure security of supply and avoid the $30/MMBtu gas prices seen last winter, ICF Consulting Canada Inc. said in a new study prepared for the Nova Scotia Department of Energy.

That's one option the firm outlined in "The Future of Natural Gas Supply for Nova Scotia," an $85,000 study that was released Wednesday. It had been scheduled to come out at the end of March but was held back for revisions.

Production from the Sable Offshore Energy Project has fallen from initial flows of more than 500 MMcf/d in its early years to less than 150 MMcf/d recently. Adding 10 MMcf/d of production from the onshore McCully field brings total gas production in Maritimes Canada, which includes Nova Scotia, New Brunswick and Prince Edward Island, to about 160 MMcf/d, which is below current domestic consumption, ICF said.

Last winter, the balance of Maritimes Canada's gas demand was met with supplies from the Canaport LNG (liquefied natural gas) terminal in New Brunswick. "The situation should improve in 2013 with the anticipated startup the Deep Panuke offshore field production, which is expected to add another 300 MMcf/d of gas supplies [see Daily GPIJuly 3]," ICF said.

"However, production from Deep Panuke is forecast to decline steeply, following the natural pattern of production from such new production reservoirs. As Maritimes Canada demand grows, it is very possible that the provinces' gas demand will exceed domestic gas production regularly within the next 10 years."

Without development of new domestic gas resources, ICF said, Maritimes Canada gas consumers should consider signing up for 100-600 MMcf/d of firm pipeline capacity from the Marcellus.

"The study provides us with a better understanding of the market," said Energy Minister Charlie Parker. "The spike in gas prices last winter highlighted that as our natural gas demand increases and our domestic production begins to decrease, we need to take steps to ensure continued access to competitively priced natural gas."

The study found that when demand is highest in winter, Nova Scotia is forced to buy gas from the congested New England market, which inflates the cost. Firm capacity on a new pipeline into New England to alleviate the bottleneck would be one solution, Parker said, citing the study. New gas storage capacity in Nova Scotia also would help manage price volatility during peak periods, he said.

ICF said contracting for the recommended pipeline capacity could be challenging.

"The pipeline expansions proposed for New England will necessarily rely on New England shippers to support the bulk of the expansions," the report said. "The LDCs [local distribution companies] in New England appear to have sufficient capacity to meet their needs, so that new firm shippers would be power generators. At present, power generators do not have a pricing mechanism to recover firm pipeline costs over the term of typical pipeline contracts.

"Whether these new shippers will be forthcoming is an open question. Maritimes Canada shippers themselves are unlikely to be able support an entire pipeline expansion."

During cold periods, Canaport sees "extensive use," ICF said. "This happens because in all of the cases [studied by ICF], gas prices in New England are sufficiently high to attract LNG from Europe to New Brunswick."

For instance, during a cold snap in late January, flows of LNG stored at Canaport into New England were scheduled to be 848 MMcf/d, which is about 748 MMcf/d more than during periods of milder weather, according to the U.S. Energy Information Administration (see Daily GPIJan. 25).

"In the modeling of regional supply-demand dynamics, Canaport acts somewhat like a storage facility might operate, if one is built in Nova Scotia as is planned," ICF said. The Alton Natural Gas Storage Project has been proposed to be constructed in Nova Scotia using several solution-mined salt caverns. Currently there are no underground gas storage facilities north of Boston along the Maritimes & Northeast Pipeline (M&NP) route, which currently runs south from Nova Scotia to the northeastern United States.

In its report, ICF questioned whether a storage facility would be economic now or in the future. "ICF's analysis did not study the storage question directly; but the role of the Canaport facility in all of the scenarios studied suggests that a storage project or LNG terminal can provide seasonal gas supply."

In each of the scenarios studied by ICF, M&NP flow was reversed to deliver gas to Nova Scotia. "Some construction of additional pipeline infrastructure may be required to effect more long-term reversal of the pipeline," ICF said. "Under the [study's] base case, this would be modest; under the high-demand cases, expansion could be more significant."

North American shale gas has brought benefits and challenges to Maritimes Canada, ICF said.

"ICF believes gas prices will remain in the $4 to $6 per MMBtu range and this means economic gas supplies for Maritimes Canada for the foreseeable future," the firm said. "These same developments, however, have reduced the competitiveness of the Scotian Shelf resources, requiring additional external supply to meet domestic requirements.

 "Reversing M&NP to deliver gas into Maritimes Canada is feasible and except for the high demand cases, probably low cost. But reversing M&NP is not the issue; securing additional supplies into New England that can reach M&NP is the challenge."

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