The New Brunswick Energy Commission (NBEC) has recommended that the province increase its reliance on natural gas as it transitions away from the use of other fossil fuels for heating, electricity and transportation.

Meanwhile, Export Development Canada (EDC), the country's export credit agency, said Friday that the province's growth in energy exports will slow in 2011 and 2012, in part due to depressed natural gas prices.

The NBEC was appointed by Premier David Alward in October 2010 and given the task of coming up with a 10-year energy plan for the province. Co-chaired by Jeannot Volpe and William Thompson -- a former natural resources minister and the current deputy energy minister, respectively -- the commission recommended in its final report on May 24 using natural gas as a transitional fuel, pursing the development of shale gas and also examining the possibility of switching the province's own fleet of vehicles to natural gas.

"[The] government should consider using natural gas for residential, commercial and industrial applications, including the generation of electricity," the NBEC said, adding that "the benefit of expanding access to natural gas is heightened by the potential of significant natural gas reserves existing in New Brunswick shale formations."

Only 4.3% of households in the province are using natural gas to heat their homes, the NBEC found. By comparison, 49% of households in Canada as a whole are using natural gas for heat.

The NBEC said the distribution of natural gas in the province was challenged by a cost structure that might restrict future growth, even along transmission lines. To remedy the problem, the commission recommended regulatory changes, encouraging and promoting the use of natural gas and expanding the opportunity for residents to receive natural gas through alternative delivery methods "especially where it would not be cost-effective to build a pipeline."

But the NBEC did advocate connecting the Maritimes & Northeast Pipeline with the TransCanada Pipeline in Quebec. That connection would "create a more secure national system with supply options from the Maritime region, including liquefied natural gas, offshore and indigenous supply and Western Canada," the NBEC said. "This has been discussed in the past, but the lower than predicted amounts of natural gas and potential market demand made the development not economical at the time."

The NBEC also recommended that while an economic benefits program should be created to help the natural gas industry develop, the province also needed to take care of its coastal responsibilities.

"[The] government should work to establish an offshore oil and gas agreement with the federal government to define the role of each government in the development of oil or gas resources off our provincial coasts," the commission said, calling an agreement between Ottawa and Quebec in March "a template for negotiations."

In its semi-annual Global Export Forecast, the EDC said that since more than two-thirds (68.3%) of New Brunswick's total exports are from the energy sector, any overall increase in export growth is dependent upon the prices for oil and natural gas. The agency said total exports for New Brunswick were C$12.57 billion in 2010, of which C$8.58 billion were from the energy sector.

The EDC predicts that the province's energy export growth rate will slow to 20% in 2011, then down to 7% in 2012. By comparison, New Brunswick's energy exports grew 34.2% in 2010. The agency said the province's total exports would grow by 17% in 2011 and 6% in 2012.

"Oil prices are difficult for anybody to forecast at the moment because at the same time we see high prices, we see very high inventories," EDC Chief Economist Peter Hall said. "Days' supply numbers are as high as they were in the early 1990s when prices were US$20 a barrel. We don't see prices going down that low, but we do see a speculative premium inside of oil." He said the EDC forecast oil to average US$95/bbl in 2011 and declining to US$90/bbl in 2012.

But the EDC said the trend in natural gas prices was the reverse that of oil, predicting prices to rise just 2% in 2011 before jumping 11% in 2012. If that happens, the agency said, the 1 Bcf/d Canaport LNG facility in Saint John, NB would receive a "substantial boost" to its export earnings.

"While the shale gas boon continues to depress natural gas prices in the North American market, we expect the Canaport terminal to continue operating well below design capacity as other sources are more attractive options than LNG shipments," the EDC said.

The agency added that although shale gas activity was continuing in the province, "production and exports remain a few years away." The EDC cited Corridor Resources Inc. and Apache Corp. drilling test wells into the Sussex and Miramichi portions of the Frederick Brook Shale (see Shale Daily, Dec. 7, 2010).