El Paso, Marathon Consider Scotian Pipe to NYC Market

A simultaneous blend of production capacity and capital dollars, tossed together with significant growth in electric generation, created the perfect "aligning of the planets" to finally make a serious go at building a subsea natural gas pipeline from Nova Scotia to the northeast United States, with a possible end point of New York City, said one of the executives involved in the planning.

Steve Beasley, president of Tennessee Gas Pipeline Co., subsidiary of El Paso Corp., told NGI Friday that El Paso and Marathon Oil Co. have agreed to conduct a feasibility study for a major new pipe that would begin offshore Nova Scotia, travel across Canada and provide supplies to various northeast U.S. points, ending in the New York City region. The pipe could be on line by the middle of this decade, Beasley said.

Though he could not discuss some details of the proposal, Beasley said El Paso and Marathon are attempting to create a forum between all of the stakeholders involved, from producers to consumers, to discuss issues involved in the possible pipeline. He estimated it would be several months before a study was actually begun because the companies were hoping to attract interest in the discussions from as many as possible.

Just last week, Nova Scotia's Premier John Hamm told an audience at the Offshore Technology Conference in Houston that his government was hoping to attract more industry interest in building a pipeline to carry an estimated 18 Tcf of gas reserves from fields offshore (see related story).

El Paso's Tennessee Gas and Marathon, a unit of USX Corp., already have completed a preliminary feasibility analysis to examine technical and environmental issues, and found the early findings favorable enough to proceed.

"We have assessed that there is real value to be created by giving all participants along the value chain a new option for natural gas deliveries," said E.J. Holm, CEO of the Eastern Pipeline Group for El Paso Corp. He added that El Paso and Marathon would consider "joining with other U.S. and Canadian parties who can bring value to the project."

Beasley backed up Holm's statement, telling NGI last week that El Paso is in "discussions with a number of customers on either end of the pipe, both from the producer end and the market standpoint." He declined to name any names, however, until more details are completed. No timetable has been set either, although Beasley said more specific plans should be in place within several months, "provided the various producer constituents and provided the agencies come together."

Although he said it was too early to discuss what size of pipe or how much capacity a day would be sent south, Beasley said the proposed route would carry a "large diameter pipe." Estimated costs are between US$1.3 billion and $1.6 billion.

If a pipeline were directed toward northeastern U.S. markets by around 2006, supplies would be welcomed. The U.S. Energy Information Administration has forecast that annual natural gas consumption in the region will rise 26% to 3.88 Tcf in 2006 from 3.06 Tcf in 1996.

"We are beginning to see the convergence of a market need in the northeastern United States and a growing demand for natural gas," Beasley said.

The North Atlantic Scotian Shelf, located offshore Nova Scotia, is geographically attractive to the East Coast of the United States, and several producers have begun to ramp up production in the potentially gas-rich play there.

To date, there is only one project actually in production: the 500 MMcf/d Sable Offshore Energy Project, which began production in 1999. This project ships gas to New England markets through the Maritimes & Northeast pipe, which is jointly owned by Exxon Mobil Corp., Westcoast Energy Inc. and Duke Energy Corp.

However, just months ago, PanCanadian Petroleum Ltd., Canada's largest producer, announced a C$1 billion ($655 million) ramp up of its Deep Panuke gas play, which is expected to produce up to 400 MMcf/d by 2005 (see NGI, March 5). PanCanadian estimates that 1 Tcf of recoverable natural gas may be stored within its Deep Panuke play at depths of more than 5,000 feet offshore Nova Scotia.

With its plans to increase Scotian drilling, PanCanadian CEO David Tuer said the company has a "huge stake in Nova Scotia," and added that he "absolutely thinks there is more gas out there" than the estimated 1 Tcf the company hopes to produce.

In a list that is growing, Canadian Superior Energy Inc. has vowed to drill a C$24-million (US$16-million) Sable-area well this year. President Greg Noval said the target is the same geological formation, known as the Abenaki Reef, where PanCanadian Petroleum Ltd. scored its Deep Panuke discovery (see NGI, March 19). And last November, a 50-50 consortium of BP Canada Energy Co. and Anadarko Canada Corp. earned the top spot in bids for one of eight exploration licenses off the Scotian coast, with a bid of C$97.8 million (see NGI, Nov. 6, 2000).

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