A landmark ruling by Canada’s National Energy Board (NEB) has stopped an attempt by international merchants to parlay global trade in liquefied natural gas (LNG) into relaxation of controls on sales of Canadian production to the United States.

In its first decision on a long, high-volume export in nine years, the NEB last week approved Repsol Energy Canada Ltd.’s request for a 25-year license to import liquefied natural gas (LNG) at the Canaport LNG Terminal at Mispec Point near Saint John, NB, and a separate 25-year license to export regasified LNG to the U.S. (see Daily GPI, Sept. 8). Reexports of LNG landed in Canada to the U.S. will be subject to review, and traders will not be able to substitute Canadian-sourced supplies for flows originating overseas.

The case dealt with a new role for Canada as a middleman in the global LNG trade. The change is scheduled to start by the end of this year with completion of the Canaport terminal and the associated Emera Brunswick Pipeline to the northeastern U.S. from the port at Irving Oil’s Saint John refinery.

Repsol — an affiliate of Spain’s Repsol group, key sponsor of the projects — had requested a 25-year license to reexport the entire 1 Bcf/d that Canaport can handle in order to ensure the multilateral trade vision becomes reality.

Since 1999 all new commitments of Canadian gas to the U.S. have been for periods of two years or less under permits granted as routine approvals without formal public notices or hearings. Instead of securing longer contracts and matching board licenses, marketers have maintained their export volumes by repeatedly obtaining short-term permits.

Repsol asked the NEB to set aside even the requirement for short permits by arguing that markets should be the sole deciding factor in gas trading done by international traders. The proposal triggered a lively debate among 16 industry and government interveners and the first oral hearings on gas exports to the U.S. in recent memory.

In the end, the board decided to continue applying a 21-year-old policy called the “market-based procedure,” or MBP for short. The approach developed out of an at times hot debate over implementing 1985 Canadian oil and gas deregulation deals between the federal, Alberta, Saskatchewan and British Columbia governments, known as the Western Accord and the Halloween Agreement.

The pacts kept alive Canadian tradition of ensuring that gas supplies can be reserved for domestic requirements while abolishing formerly tight controls on export volumes and prices. The legacy remains enshrined in Canadian federal legislation.

Under the MBP, supply commitments to the U.S. that last less than two years are allowed as routine matters unlikely to affect Canadians but longer contracts are publicly reviewed. The approach uses a notice and complaint procedure that obliges the NEB to intervene in the trade if Canadian consumers prove they cannot obtain gas on terms and conditions comparable to provisions of long export contracts or if there are doubts about whether supplies are adequate to support the foreign commitments.

In the Repsol case, the board ruled “the requirements to ensure that Canadian gas demand is satisfied, that export licenses of domestically produced gas are supported by supply arrangements, and other relevant public interest considerations are still met by the application of the MBP.”

Repsol, supported by the Canadian Association of Petroleum Producers and Irving, unsuccessfully urged the NEB to accept a more modern idea that the gas market is fully deregulated and contracts alone should call the tune on distribution of supplies.

The board rejected intervener demands for Repsol to disclose contents of a marketing agreement under negotiation with Irving, on the strength of a pledge by the international trading house to make LNG available to potential Canadian buyers as well as American customers.

But a door was left open for the NEB to intervene in future, pursuant to the MBP. “This does not preclude an interested party from raising concerns at some later date concerning terms and conditions to access the imported LNG,” the board said.

In granting a license to export all the Canaport imports, expected to arrive largely from Trinidad and Tobago, the NEB acknowledged “the regasified LNG imported by Repsol will be incremental to Canadian production and it may enhance the supply that is available to Canadians to meet their energy needs.”

The NEB also agreed with the international traders that “the potential addition of LNG supply in the [Canadian] Maritimes could provide a significant opportunity for future natural gas market development in that region.”

But not even those benefits shook the NEB’s determination to uphold the last vestiges of gas trade policing enshrined in Canada’s 23-year-old partial deregulation policy. Creating an exemption for global merchants would require much consultation and negotiation among multiple “stakeholders” followed by legislative changes, the NEB said.

“Repsol did not address the impact of exporting one Bcf per day, or a portion thereof, of Canadian-produced natural gas on the present and future availability of gas for Canadian requirements, even after the board requested such information,” the decision observed.

“When such gas supply and associated facilities become available to Repsol in the future, Repsol could apply at that time for a gas export license,” the NEB said.

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