Producers and consumers alike stand to gain if Quebec and Ontario secure access to natural gas from the new production fields offshore of Nova Scotia that have to date been tapped almost entirely for exports to the northeastern United States, according to Gaz Metropolitain of Montreal and Enbridge Inc., owner of Toronto distributor Enbridge Consumers’ Gas. The two companies are proposing to build a new pipeline, the Cartier project, that would connect markets in Quebec City with a new lateral off of the Maritimes & Northeast Pipeline in New Brunswick.

The Cartier partnership forecasts gains all around in a request filed with Canada’s National Energy Board (NEB) to make a reluctant Maritimes & Northeast Pipeline add facilities that make construction of Cartier possible. By spreading costs of the eastern gas grid thinner over increased traffic, Cartier predicts it would cut tolls by up to 24%.

All users would benefit with the exception of branch lines serving new distribution franchises in Canada’s Atlantic provinces, which already have special low rates. At the same time, producers are promised new sales options beyond the New England markets where most Nova Scotia gas now goes while energy consumers improve supply security and likewise enhance their ability to shop around.

The Cartier request follows an NEB ruling that encouraged it to go ahead after a fight during fall hearings on tolls charged by M&NP. The board ruled that the new project was not covered by a provision in the M&NP service manual that lets it levy surcharges and collect up-front downpayments for new facilities that it does not consider to be within its core mandate as primarily an export line.

Two alternatives are proposed for the new link to central Canada. In both cases, Cartier would look after its own costs: C$291.5 million (US$187 million) for 260 kilometers (162 miles) of pipe between Quebec City and the western boundary of New Brunswick. M&NP would spend $303 million (US$194 million) to lay 257 kilometers (160 miles) of pipe, titled the Northwest Facilities, between the Quebec-New Brunswick border and a connection with its mainline near Fredericton.

Cartier says M&NP has two options: a C$46.3-million (US$30-million) expansion of delivery capacity on its mainline by 189.5 MMcf/d, or a 408 MMcf/d expansion nearly doubling current capacity for C$138.8 million (US$89 million). The smaller mainline expansion would trim tolls as of 2006 by about C3 cents (US2 cents) per MMBtu or 4% to C73 cents (US47 cents), the Cartier partnership calculates. The bigger project is forecast to cut the rates by C18 cents (US11.5 cents) or 24% to C58 cents (US37 cents) per MMBtu. Cartier said the larger project would leave M&NP with a 219 MMcf/d increase in its capacity for exports to the U.S. after taking care of central Canada’s forecast needs for Nova Scotia gas as of 2006.

The proposal injects central Canadian consumer interests into a lineup forming for additional supplies developing offshore of Nova Scotia, where drilling is accelerating while PanCanadian Energy launches a new production project and triggers an M&NP expansion to tap its Deep Panuke discovery. The Cartier group says, “These new pipeline facilities will provide market diversification for Atlantic producers and, at the same time, will enhance supply diversification for markets in central Canada.” The proposal includes a design for the Cartier-Northwest connection that would enable gas to flow west or east. “In reverse mode…these new pipeline facilities would provide security of supply for markets located in the Maritimes.”

Gaz Metro and Enbridge Consumers’ Gas have each made contracts to use 45% of the proposed Cartier-Northwest line’s capacity for deliveries to their distribution areas in Quebec and southern and eastern Ontario. The remaining 10% would be “merchant capacity” for miscellaneous sales. The central Canadian distributors project steady growth in gas consumption across their franchise areas and are anxious to minimize chances of more price spikes like the record highs set last winter by widening their supply options.

The Cartier group, M&NP and other organizations affected by the proposal had until Christmas Eve to file preliminary exchanges of documents at the NEB. The board is expected to decide on next steps on the proposal early in the new year. Long before any final rulings, the Cartier proposal is having effects far beyond Atlantic Canada. The project figures in a contested NEB application for an increased rate of return and higher tolls by TransCanada PipeLines. It says Cartier spells accelerating competition and increased business risk by injecting new supplies into Ontario and Quebec markets that have been TransCanada preserves since the 1950s.

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