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Atlantic Region Building as Next Canadian Supply Hot Spot

Atlantic Region Building as Next Canadian Supply Hot Spot

Interest in gas from the Sable Offshore Energy Project (SOEP) is growing in the Northeast. BP Amoco said it will market some of the production, and a distribution franchise has been awarded to serve the province of New Brunswick. Long-term gas and oil supplies from Atlantic Canada could play a major role in meeting Northeast demand, according to a recent study.

BP Amoco last week announced plans to market 45 MMcf/d of Sable gas production through an agreement with Nova Scotia Resources (Ventures) Ltd. [NSR(V)L]. "Our North American natural gas position and marketing capabilities will maximize the value of NSR(V)L's gas interest in the Sable project," said Brian E. Frank, vice president (Canada) of Amoco Energy Trading Co., BP Amoco's North American gas marketing arm.

Amoco Energy Trading will market the gas primarily in New England and the northeastern United States. The company will take its Sable Island gas from the Tennessee Gas Pipeline, which will pick up Canadian deliveries from the Maritimes & Northeast Pipeline at Dracut, MA. Both firm and interruptible contracts are expected, a spokeswoman said. It will pursue additional optimization opportunities throughout BP Amoco's supply, transportation, storage and customer portfolios in North America.

NSR(V)L currently holds an 8.4% interest in the Sable project, which translates to about 45 MMcf/d of marketable gas. It is estimated that Sable has 3.5 Tcf of reserves.

"NSR(V)L and Nova Scotia will reap the benefits of having access to the marketing experience of BP Amoco," said Jim MacDonald, NSR(V)L general manager. "It is a pleasure to see another major oil and gas company becoming involved with the industry in Nova Scotia." Amoco Energy Trading has gas sales of 5.5 Bcf/d.

Nova Scotia Resources (Ventures) is a subsidiary of Nova Scotia Resources Ltd., the Provincial Crown Corp. responsible for managing Nova Scotia's participation in offshore oil and gas development. In addition to its 8.4% share in Sable, the company has participated in the Cohasset/Panuke oil field and exploration activity resulting in 11 other significant discoveries. The agreement is effective immediately with first production expected Nov. 1.

While Amoco targets New England and the northeastern United States, Canadian consumers in the province of New Brunswick won't have to watch Sable Island gas pass them by as a distribution system was approved last week for the province.

Enbridge Wins Franchise

Enbridge Gas New Brunswick won a 20-year renewable franchise to develop the system from the provincial government following evaluation of competitive bids submitted earlier this year. Enbridge Gas New Brunswick is a joint venture between Enbridge Inc., with a 63% interest, and 28 local New Brunswick investors.

"We have developed a close partnership with the local investors, and we share their vision and determination to bring the benefits of natural gas to as many New Brunswickers as possible," said J. Richard Bird, Enbridge Inc. senior vice president for corporate planning and development and chairman of Enbridge Gas New Brunswick. "The project is also of strategic importance because it provides Enbridge with a presence in Atlantic Canada, which is becoming an important new energy region in North America."

Enbridge Gas New Brunswick anticipates investing about $300 million during the 20-year franchise period. Construction is expected to begin in the spring of 2000 with gas service to the first New Brunswick customers planned for late 2000. Communities scheduled to receive gas service within the first year include Fredericton, Saint John, St. George, Moncton and Chipman, with a total of 23 communities to be served within five years.

Gas supply is to come from the Maritimes & Northeast Pipeline, which is to travel through southern New Brunswick. Enbridge is anticipating two northward laterals to be built off the pipeline, one in the western and one in the eastern half of the province, Enbridge spokesman Jim Rennie said.

Rennie said Enbridge hopes to serve 70,000 customers within the 20-year franchise period, about 70% of the potential market. Industrial customers are not obligated to hook up to the distribution system but instead may connect directly to Maritimes & Northeast after paying a franchise fee, Rennie said. "Some large industries will go that route. Other industries that are in the northern part of the province will probably have to wait for a lateral."

Enbridge owns and operates Canada's largest gas distribution company, which provides gas to more than 1.4 million customers in Ontario, Quebec and New York State. Supplier choice has been available on Enbridge Consumers Gas in Ontario for about 10 years, and there are 20-some suppliers competing there, Rennie said. While Enbridge is a supplier in Ontario, the company does not plan to compete to provide gas supply on the New Brunswick distribution system. Rennie said it is not known how many suppliers are likely to show up to serve New Brunswick customers.

One company that has said it will participate is Saint John, NB-based Irving Oil. Irving, along with Westcoast Energy formed Maritimes NRG to compete for the New Brunswick distribution franchise; however, the partnership was disqualified. Irving has made supply and transportation agreements to purchase more than $1 billion worth of Sable gas production and plans to market gas along with heating oil and propane in the region.

"Irving Oil has been strongly committed to bringing natural gas to Atlantic Canadians on the best possible terms since the beginning of the Sable and Maritimes & Northeast Pipeline projects," said Steve Kirstiuk, Irving Oil general manager of business development. "Our company participated in public hearings on the Sable and Maritimes & Northeast Pipeline projects to ensure natural gas didn't just pass through Atlantic Canada and that decisions taken on lateral policies and tolling methodologies were in the best interest of Atlantic Canadians."

For Enbridge, the distribution system is not expected to be a major revenue source. It does, however, get the company's foot in the door in the Atlantic region. "We are excited about this, but it's not going to be a major contributor to our bottom line," Rennie said. "We are excited because it's our first entry into the Atlantic provinces.. We're going to start with New Brunswick as a gas distributor and see how that unfolds." Retail services could come next. "We don't have plans to do that yet, but that could be the next step. We are a major pipeline builder and operator. There are a lot of pipelines being talked about for offshore Newfoundland. There are a lot of options. This just give us a foothold."

Report Predicts 500,000 boe/d

It would appear to be a good time to start building a presence in Canada's Atlantic region. Oil and gas production from offshore Atlantic Canada could reach about 500,000 Boe/d if, as key operators in the region predict, a new development project begins every two or three years throughout the next two decades, according to "Harnessing the Potential - Atlantic Canada's Oil and Gas Industry."

"Offshore Atlantic Canada is now firmly established as one of the bright spots in Canada's petroleum sector and has started to attract the attention of world-class players in the oil and gas industry. Some of the world's major oil and gas companies have embarked upon aggressive and ambitious exploration and development programs in Atlantic Canadian waters," the report said. "Since 1995, more than $700 million in exploration commitments have been announced for four regions within the Atlantic Canadian offshore: the Jeanne d'Arc Basin, Scotian Shelf, Sub-Laurentian Basin and the St. Pierre Bank."

And the largest pipe-laying vessel in the world, Allseas Solitaire, recently finished installing 122 miles of pipe along the ocean floor for the Sable project. Solitaire installed the main gathering line, which transports gas from Sable's Thebaud Central Processing Platform, located 10 km west of Sable Island, to the landfall at Goldboro, Guysborough County. Solitaire completed the final lay-down at the Thebaud Platform Sept. 3.

Production for Atlantic Canada's offshore of 500,000 Boe/d would be equivalent to 50% of Canada's current light crude oil production and more than 300% of current oil consumption for Atlantic Canada. "To achieve this level of production, there could be as much as $55 billion in cumulative capital and operating expenditures associated with the development and operation of these fields.

"East Coast Canada's strong reserve potential provides an excellent hunting ground; its large potentially hydrocarbon-bearing structures remain virtually unexplored; exploration that has been undertaken has had very encouraging rates of success. Typically, pool sizes have been large and flow rates superior."

The report was sponsored by the Newfoundland Ocean Industries Association (NOIA), the Offshore Technologies Association of Nova Scotia (OTANS), the Metal Working Association of New Brunswick (MWANB) and the Atlantic Canada Opportunities Agency.

Joe Fisher, Houston

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