Higher bills are starting to arrive in Nova Scotia and New Brunswick after the provinces decided to drop out of natural gas production by enacting bans against the unconventional development that could have replaced depleted offshore supplies.

The National Energy Board (NEB) approved the first installment: a 120% increase in a toll surcharge that goes into a trust account saved to pay for abandoning Maritimes & Northeast Pipeline (M&NE) at the end of its useful life.

The fee, required on all Canadian gas and oil lines under NEB jurisdiction, jumped to C$11 cents (US$0.9)/MMBtu from C$0.05 (US$0.04)/MMBtu. Total M&NE abandonment costs are estimated to be C$150 million (US$120 million).

The toll hike, approved retroactively to May 1 in order to fill the trust account by the mid-2030s, arises from a bleak outlook for the pipeline built in 1999 for exports to the northeastern United States from the Sable Offshore Energy Project (SOEP).

The higher charge makes up for an imminent loss of gas traffic volume that M&NE expects to lose. As of Nov. 1, 2019, transportation service bookings are forecast to drop to 160 MMcf/d, or about one-fourth of capacity, with the line only carrying imports from the United States to domestic markets in Nova Scotia and New Brunswick.

SOEP owners ExxonMobil Canada, Shell Canada, Imperial Oil, Pengrowth Energy and Mosbacher Operating are letting 20-year paid pipeline capacity reservations expire.

SOEP production has sunk below 80 MMcf/d. Abandonments of exhausted wells are underway. NEB proceedings are beginning on an application to abandon SOEP’s sea floor pipeline and dismantle its Nova Scotia coast processing plant.

The only other producer and exporter that used M&NE, EnCana Corp., has also initiated abandonment of its depleted Deep Panuke offshore project. Output was less than 6 MMcf/d in May, and zero for two of the first five months of 2018.

M&NE’s abandonment surcharge hike is the first taste of added bills to come. Following NEB instructions in a March ruling, the pipeline is working with gas distributors and consumers in New Brunswick and Nova Scotia on a new toll regime to keep deliveries going by covering costs of excess capacity left by the losses of SOEP and Deep Panuke.

The regulatory proceedings on M&NE tolls raised no hope that liquefied natural gas (LNG) export terminals proposed on the Nova Scotia coast will swiftly refill the pipeline. Neither of two projects – Bear Head LNG and Goldboro LNG – has secured a gas supply.

Both LNG projects supported successful NEB export license applications with declared intentions to use eastern Canadian shale gas. But the plans and trade permits were assembled before Nova Scotia, New Brunswick and Quebec enacted politically popular bans against horizontal drilling and hydraulic fracturing.

M&NE’s abandonment surcharge application told the NEB the pipeline “evaluated the potential for alternate gas supply sources to support lost Sable offshore billing determinants [deliveries] post-2019, such as Deep Panuke backfilling, development of domestic onshore gas reserves and development of LNG export projects.”

M&NP concluded, “None of these potential alternate gas supply sources is expected to support lost Sable billing determinants post-2019, at least not in the near term.”

Nova Scotia distributor Heritage Gas agreed.

“There is no reasonable prospect that the capacity associated with providing the service to the [offshore] producers will be re-contracted to others,” the east coast subsidiary of Calgary-based AltaGas told the NEB.