Competition from U.S. exporters in Ontario and Quebec has a silver lining for sponsors of liquefied natural gas (LNG) projects on the Pacific Coast of British Columbia (BC).

Growing northbound traffic of shale supplies from the United States gives sponsors of new Canadian tanker lanes to Asia a lift past a century-old regulatory roadblock of export restrictions. As an expert witness on behalf of LNG terminal schemes, retired National Energy Board (NEB) chairman Roland Priddle is urging the agency to recognize “fundamental changes” in its decisions on gas export permits.

Gas-saturated BC shale is far from the only reason to discard the old mentality of resource scarcity enshrined in Canadian policy, Priddle said in reports done for entries in the lineup of six LNG projects for 20- to 25-year licenses to dedicate astronomical volumes to overseas trade.

“Radical changes taking place and expected in the North American energy and gas supply-demand situation make it even less likely that the export of…LNG would cause Canadians difficulty in meeting their energy requirements at fair market prices,” Priddle wrote. “It is no longer appropriate to think in terms only of the Canadian gas producing sector’s ability to satisfy Canadian needs.”

Priddle points to the strong North American trade trend tracked by the U.S. Department of Energy’s (DOE) Office of Natural Gas Regulatory Activities, annual NEB market assessments and projections crafted by Ziff Energy Group in support of the LNG export project lineup.

U.S. gas dealers, wielding shale production and lower pipeline costs than Alberta or BC suppliers, set their sixth straight annual export record in 2012 by delivering an average of 2.6 Bcf/d into central Canada.

The DOE’s latest trade scorecard, posted earlier this month, shows the growth continued in 1Q2013, when domestic pipeline deliveries into Canada averaged 3 Bcf/d, up 4.4% from the comparable 2012 winter heating season. The Ziff trade projections anticipate further growth in central Canadian gas imports from the United States, with the annual average continuing to rise steadily into a range of 4.4 Bcf/d.

“Canadian and North American energy and natural gas markets are functioning efficiently” and “have proven robust in a variety of circumstances over the past quarter century,” Priddle said in the NEB filings. “Dramatic changes taking place in the North American natural gas and energy outlooks appear to be further reducing the potential for market stresses.”

The wording of Canada’s gas export legislation enables the NEB to take a wide range of factors into account and adapt to evolving conditions, using methods it devised that are likewise open to change. The provision said, “On an application for a license to export oil or gas, the board shall satisfy itself that the quantity of oil or gas to be exported does not exceed the surplus remaining after due allowance has been made for the reasonably foreseeable requirements for use in Canada, having regard to the trends in the discovery of oil or gas in Canada.”

The six BC LNG projects that have matured to the point of obtaining export licenses aim to dedicate 137 Tcf of gas to overseas sales — nearly double the current, officially established reserves in Alberta and BC of 71 Tcf. But BC shale layers alone are estimated to contain 500 Tcf, and Alberta’s potential is rated as even higher. Meanwhile, growing imports from the United States already approach a 25% share of the total Canadian gas market of 4 Tcf per year.

The 21st-century gas markets “are underpinned by sound government policies and regulatory practices,” said Priddle. As NEB chairman from 1986-1997, Priddle arranged the current deregulation marriage between old policies of preserving Canadian supplies and the modern era of energy free trade with the United States. Under his direction, the board retained a legislative mandate to ensure that the industry only makes export commitments with gas supplies that are surplus to anticipated needs of domestic residential, commercial and industrial consumers.

The old mandate has not changed despite procedural reforms to improve regulatory efficiency, such as abolishing environmental assessments as a requirement for NEB export licenses on grounds that they were redundant to other provincial and federal regulatory reviews of production, processing and pipeline projects.

Prior to an overhaul completed by Priddle in 1987, obtaining Canadian export licenses was an ordeal of regulatory hair-splitting to pass a “surplus test.” The rule required the industry to maintain up to 30 years of inventory for future needs of all domestic gas markets, spawning marathon hearings on multiple supply and demand forecasts that debated issues from gas reserves accounting to likely population and economic growth rates.

Priddle invented a market-based regime that reinterpreted the supply preservation legislation into a complaint-based procedure, where export licenses may only be withheld if Canadian consumers demonstrate that they will lose ability to obtain gas volumes and prices comparable to deals made with foreign buyers.

In his work today on behalf of overseas LNG export projects, the former NEB chairman suggests widening the approach that has worked for Canadians into a market management regime for all of North America.

“Canadian energy and gas markets have been functioning satisfactorily for more than 25 years and are now fully integrated with those of the United States where similar market functioning has been confirmed many times,” he said. “The fundamental premise of the market‐based procedure is therefore being borne out on a continental scale as North American energy markets are operating in such a way that requirements for energy and natural gas are being adequately met at fair market prices.”

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