Canadian regulators have been bluntly warned that the continental market in natural gas has overtaken their ability to turn back the clock by policing it more tightly without damaging it. Transactions have attained a level of speed and complexity where even dipping into the stream to collect and disclose information would be disruptive, the Canadian Association of Petroleum Producers (CAPP) said in a request to the National Energy Board (NEB) to refrain from trying to interfere.

The warning surfaced in written evidence submitted to the NEB in preparation for hearings beginning Monday (July 15) in Fredericton on a request for tougher export policing by the New Brunswick government. The province wants advance disclosure of deals made under short-term, two-year export licences for gas production offshore Nova Scotia.

About 90% of exports from the Sable Offshore Energy Project, via Maritimes & Northeast Pipeline (MNP) to the Boston area, move under short-term permits. The permits also have become the Canadian industry’s principal tool for pushing production from the western provinces into the international market. Since the onset of energy deregulation in 1985, exports under short licenses have grown from a tiny minority of a trade originally dominated by long contracts to an 82% majority of the traffic, NEB records show.

New Brunswick triggered the hearings with a formal complaint that eastern Canadians are being denied access to gas produced off Nova Scotia. The province is also making contested attempts to inject the issue into NEB proceedings on an MNP application for an 80% capacity expansion. The expansion would carry up to 900 MMcf/d, or all the production from EnCana Corp.’s C$1.1 billion (US$733 million) Deep Panuke project. While EnCana promises to pay attention to any serious Canadian bidders for the gas, New Brunswick says it has evidence that the American market is getting priority even though about four-fifths of Nova Scotia production is already dedicated to the northeastern U.S.

New Brunswick seeks disclosures of deals made under the short licenses as a means for would-be buyers in the Maritime provinces to secure supplies by learning when gas is available and under what terms. Full disclosures of export plans and formal opportunities for Canadian consumers to step forward occur only in the minority of cases, where dealers and U.S. buyers seek long permits from the NEB, usually to satisfy security requirements for financing projects such as gas-fired power plants.

CAPP describes New Brunswick’s idea as unworkable because the province misunderstands the market. The trade long ago ceased being a simple matter of exporters and U.S. buyers making a deal, then asking for permission to ship the gas. The short-term permits have evolved into hunting licences.

CAPP says “export arrangements commonly are put into place after the short-term authorization is granted, and also commonly occur under dynamic conditions which reflect rapidly changing market conditions and short response times.”

The short-term permits also give gas suppliers flexibility to change the sources used to fulfill commitments in ways that extract the most profit from portfolios of production assets. The process includes companies buying gas produced by others and reselling it, rather than relying only on their own wells.

“Given the integration of the North American natural gas market, a company may have a demand requirement in region A of a relatively permanent nature, but will move its sourcing of gas to meet that demand from one to another of a variety of alternate supply regions, depending on market conditions. The dynamic nature of gas selling and buying cuts across the entire North American market, both Canada and the U.S,” CAPP said.

The gas producers warn that damage could be done to the trade even by a seemingly mild action of creating an official disclosure record for prices paid for particular supplies moving under each short-term export licence. The NEB currently reports only overall monthly averages fetched at the international border.

The Canadian producers said, “Buyers of gas can also be actual or potential resellers. Resale is a feature already in Maritime Canada. Marketers are also already operating as middlemen in the Maritimes.” In the northeastern U.S., “Scotian gas competes with other supply regions. Information that is posted is transmitted through the marketplace very quickly, including to competing supply basins. Posting thus means giving commercial competitively valuable information to actual or potential competitors.”

Publication of detailed data about international gas transactions would amount to “interference with the market,” CAPP warns. “It creates uncertainty that market development efforts will be stolen by competitors.” The production companies suggest that the biggest loser under the policing sought by New Brunswick would be the Canadian energy consumers that the province says it wants to protect by making more gas available to them.

Injecting governments back into the energy scene to collect and disclose details of transactions “undermines the pursuit of competitive advantage, which is the essence of a free market. As such, it would act to dampen the appetite for taking the cost and risks of Scotian offshore exploration and production where other resource basins are not subject to such restrictions,” the producers said.

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