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Gas Market Expanding In Atlantic Canada

Gas Market Expanding In Atlantic Canada

As Maritimes &amp Northeast Pipeline heads into construction, it is starting to look more like a domestic Canadian supply system and lose its original flavor as almost exclusively an export project. The evolution of MNP as the delivery route for the Sable Offshore Energy Project has set off speculation in Canada that it will change significantly by its scheduled in-service date of Nov. 1, 1999.

Ziff Energy Group, for instance, predicts the American segment of the line will carry "no more than 275,000 MMBtu per day" - or 62% of the original plan for 440,000 MMBtu/d - "and possibly less." The change is being blamed partly on conditions in the United States, where analysts point to less buoyant gas demand than expected and an application by MNP to Washington's Federal Energy Regulatory Commission for a postponement of plans to "prebuild" the northern-most American facilities in Maine. But there is also plenty of action in Canada.

North of the international border, MNP is proceeding full steam ahead, with C$11 million (US$8 million) in contracts just awarded for a September start on receiving pipe, stockpiling it across Nova Scotia and New Brunswick, and clearing the Canadian right-of-way. Introducing and spreading gas service in Atlantic Canada, the last part of the country without it, is a cornerstone of both MNP and SOEP. Officially, the projects remain primarily dedicated to exports, with about four-fifths of deliverability dedicated to the northeastern U.S. But domestic Atlantic Canadian markets are being courted aggressively, and they are stepping forward.

The National Energy Board promptly scheduled hearings to start Nov. 23 on a third "lateral" proposed by MNP to serve budding Atlantic Canadian markets. The new entry raises the pipeline project's commitments to domestic delivery facilities to C$186 million ($US133 million), counting earlier applications for construction of spur lines to Halifax on the Atlantic coast of Nova Scotia and St. John in southern New Brunswick.

MNP officials say marketers are working hard on piecing together shipping contracts to support two more lateral lines on the project's drawing boards, to reach Prince Edward Island and northwestern New Brunswick.

MNP and SOEP remain cautious about predicting when potential demand will be translated into firm commitments in Atlantic Canada, saying they are prepared to respond to customers as they emerge. But in another proceeding under way before the NEB, MNP displays confidence that it is getting in on the ground floor of a healthy growth market in Canada. High expectations show in a submission by MNP to a marathon research effort by the board to prepare an overall forecast report on Canadian energy supply and demand through 2025.

MNP rates the current potential for gas use in Atlantic Canada at 475,000 MMBtu per day - or 99% of the new pipeline's total initial capacity. Much of the theoretically possible consumption is expected to become reality within a reasonable span of time. By the fifth year after MNP starts deliveries in November of 1999, Atlantic Canadian gas demand is forecast to reach 340,000 MMBtu/d or 125 Bcf per year. In 15 years, consumption is expected to be 430 MMBtu/d or 150 Bcf annually. The expectations are based on customers emerging for the lateral spur lines plus regional surveys by SNC-Lavalin Inc. and J.A. Flanagan Business &amp Analysis Ltd.

While MNP is putting a priority on finding industrial customers, the pipeline also anticipates a strong "core market" of residential and commercial consumers. MNP predicts that even though gas will cost Atlantic Canadian consumers C$8-$9 per MMBtu (US$5.70-$6.40) by the time it reaches their furnaces via new distribution franchises now under review by Nova Scotia and New Brunswick authorities, it will still be 30-60% cheaper than oil, electricity or propane.

Oil accounts for 64% of space and water heating in Nova Scotia and 92% on Prince Edward Island. In New Brunswick, electricity has a 62% share of the heating market, with oil coming second at 29%. But gas is also expected to compete with oil as a fuel for power stations. Oil accounts for 31% of industrial energy use in Nova Scotia and 30% in New Brunswick.

Gordon Jaremko, Calgary

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