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Scotian Officials Tell EnCana, 'Thanks, but No Thanks' on Panuke Pipe

The Nova Scotian government gave EnCana Corp. the brush off late Thursday, telling the energy giant it does not want to pay any of the costs for a proposed pipeline to carry natural gas from EnCana's on-and-off-again offshore Deep Panuke project. EnCana had offered the province the opportunity to take an ownership stake. The offer was required under Canadian law.

Energy Minister Bill Dooks said the province completed an indepth financial analysis and reviewed the project with an independent consultant. In the end, he said, it had to turn down the offer to invest. EnCana, which is expected to file an updated regulatory plan on the Panuke project in November, had estimated the subsea pipe would cost about C$233 million. Earlier estimates for the entire Panuke project were put at about C$1 billion ($700 million).

"We've decided that the best route would be not to enter into an agreement in ownership of the pipeline," but rather to gain financial benefits for the province through royalties in the standard Offshore Strategic Energy Agreement with EnCana, Dooks said. "For me to make a recommendation to purchase such a substantial pipeline at this time would not be the direction I would want to go in."

Dooks said, "At this time, we feel Nova Scotians would rather we invest their money in things like education and medicine."

The previous provincial government had promoted and encouraged East Coast exploration, and it planned to sell its stake in EnCana's Panuke pipe to Emera Inc. However, discussions were halted when EnCana announced it would take a time-out on the Panuke project in early 2003 to reassess the market (see Daily GPI, Feb. 18, 2003).

Thursday, Dooks indicated Nova Scotia is no longer interested in selling its Panuke stake.

"To sell it, I'd have to buy it," Dooks said. "That's against the advice of all who took part in this decision."

The Sable Offshore Energy Project (SOEP) is now the only field in production offshore Nova Scotia, and some are forecasting a terminal decline (see Daily GPI, Jan. 10). The Deep Panuke is located about 155 miles offshore Halifax, and it is considered one of the last great hopes to secure new gas supplies offshore Canada's East Coast. After EnCana called a time-out on its exploration efforts, there has been little interest to spend money to explore there.

Just days ago, the National Energy Board (NEB) in its "Short-Term Canadian Natural Gas Deliverability -- 2006-2008" report, said "progress toward developing the Deep Panuke project may be key to encouraging additional exploration activity off the East Coast..." However, the NEB noted no gas-related exploration drilling is planned offshore Nova Scotia this year.

"Global competition for offshore drilling equipment, resulting in requirements for longer-term commitments and higher costs, is compounding the difficulty of encouraging additional exploration interest in the area. Existing exploration licenses continue to be relinquished, and there is no new call for bids in 2006."

Estimated to hold up to 1 Tcf of gas and able to produce up to 400 MMcf/d when it was discovered in 2000 (see Daily GPI, Aug. 10, 2000; Feb. 25, 2000), the project was shelved following disappointing drilling results (see Daily GPI, Feb. 18, 2003). However, in July, EnCana established a framework for a do-over, and it issued an Offshore Strategic Energy Agreement with the province outlining royalties and other project details (see Daily GPI, July 5; June 30). A month later, EnCana filed a revised production plan, reducing Panuke's estimated production by 25% (see Daily GPI, Aug. 30).

EnCana has not indicated whether it will move forward with the Panuke facility, but it is taking bids through Nov. 9 for construction of the main Panuke platform, and at least six companies have submitted bids. Still to be decided is how to get the gas to market, and there are two options on the table: build a new 176-kilometer underwater pipeline or use the subsea pipe that carries gas from the SOEP.

Documents submitted to the Canada-Nova Scotia Offshore Petroleum Board earlier this month also indicate the Panuke project could have trouble finding a processing location once the gas is piped ashore. The Goldboro Industrial Park, where EnCana plans to bring the gas ashore, already has optioned most of its industrial land to a consortium interested in building a petrochemical and liquefied natural gas (LNG) plant, according to a filing by the Municipality of the District of Guysborough.

"The majority of the industrial park lands are currently optioned to Keltic Petrochemicals Inc. and Maple LNG to allow the development of the proposed LNG and petrochemical facilities to proceed," the municipality's chief administrative officer Dan McDougall said in a four-page letter to the board. Like the EnCana project, the LNG consortium is targeting an in-service date of 2010, McDougall said (see Daily GPI, Dec. 23, 2005). Neither the Panuke project nor the Keltic LNG facility has received final regulatory approval to proceed.

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