The supply side of the Canadian natural gas industry added a key ally in its fight against proposals to restricting gas exports to the U.S. Northeast. Despite losing a pipeline project because of producer determination to dedicate Nova Scotia production to U.S. markets, Enbridge Inc. has come out on the side of producers in a battle against a new appeal from the New Brunswick government for intervention at the National Energy Board. The province is demanding rights to review and potentially block all natural gas export transactions.

The appeal asks the NEB to create a procedure of public notice and rights to object to all sales of Nova Scotia production to the U.S., including gas traveling to the northeastern U.S. via Maritimes & Northeast Pipeline under short-term export licenses for contracts running less than two years. Approvals of short licenses are rubber-stamp formalities, and they account for about 90% of the export traffic on the 500 MMcf/d M&NE line.

New Brunswick launched its appeal after Enbridge and Quebec distributor Gaz Metropolitain shelved a 517-kilometre (325-mile), C$595 million (US$400 million) package of pipelines. Known as Cartier Pipeline and the Northwest Facilities, the plan called for a new connection between M&NP and Quebec City to give New Brunswick, Quebec and Ontario access to supplies from the Sable Offshore Energy Project and an anticipated string of new developments in the Sable Island region led by EnCana Corp.’s Deep Panuke discovery. The Cartier-Northwest proposal was deferred indefinitely after two years of attempts to negotiate industry support and appeals for favorable NEB rulings to help the process along ran afoul of staunch resistance from M&NP, the Nova Scotia government, the Canadian Association of Petroleum Producers and the East Coast Producer Group of ExxonMobil, Imperial, Shell Canada and Mosbacher Operating Ltd.

Along with Gaz Metro, subscribers to capacity on Cartier included Canada’s largest distribution company, Toronto-based Enbridge Consumers’ Gas, a subsidiary of its namesake.

The supply side of the Canadian industry is adamant that unrestricted exports are essential in order to maintain the northeastern U.S. as the “anchor market” for M&NP and production development offshore of Nova Scotia.

Enbridge president Pat Daniel explained the notable absence of his organization’s name on the province’s petition to the NEB, which included a blue-chip gathering of Atlantic Canadian business and government leaders in New Brunswick’s biggest city, Saint John. At the Energy for the 21st Century Forum, an event hosted by the New Brunswick government, Daniel said, “We must recognize that imposed mechanisms for protectionism and subsidies don’t work because they distort the market.”

Daniel called for a halt to attempted revivals of government intervention on both sides of the international border. “The tendency to protect self-interests within Atlantic Canada, and the recent momentum for a U.S. Senate Energy Bill containing subsidies for pipeline proposals in the North, are causes of concern for industry. Government-imposed protectionism should also be a cause for concern for citizens.”

The Enbridge president repeated, in contemporary language, a theme as old as the Canadian industry: Domestic markets are too small to justify large-scale investments in gas supplies and have to rely on export projects to generate production for both sides of the border. Daniel said, “Without the supply first, we are nowhere towards development. Governments must provide explorers with a free and open market in which to develop projects that make economic sense for the significant financial risks associated with finding and producing the supply.”

Daniel placed Enbridge squarely in the camp of East Coast producers that are also the driving forces in planning a Mackenzie Valley pipeline, ExxonMobil and its Canadian affiliate, Imperial Oil. “Open market forces should drive the development and growth of frontier energy supplies just as they do with established ones . . . governments should not create regulations that will slow or hinder development – the physical barriers are enough of a challenge.” Daniel staked out Enbridge’s position as the NEB went through preliminary exchanges of written submissions and questions for hearings this summer on New Brunswick’s call for intervention.

New Brunswick is pressing its case all the harder as a result of Enbridge’s refusal to take sides against the producers and their allies. The province points out that the pipeline has reasons to stay in the supply side’s good books. Enbridge, originally an oil transporter, has branched out into gas by participating in the Alliance Pipeline project and associated new service at its eastern end, and is participating in northern gas development efforts.

New Brunswick says, “Governments should be allowed to make complaints about the availability of gas supplies to their citizens. Individuals and businesses make complaints to (provincial) government officials about the lack of gas supply that they often feel they cannot make to the board for fear of refusals or reprisals from gas suppliers or because of the philosophy of their senior management.” New Brunswick insists “allowing government and other entities to complain provides some anonymity to persons who might be prejudiced. Allowing government to represent gas users’ interests would be no different from allowing CAPP to represent producers’ interests.”

Although Gaz Metro has also refrained from intervening in the case, the evidence presented by New Brunswick includes explanations by the distributor of Quebec’s keen interest in gaining access to gas from Nova Scotia. During earlier hearings on the aborted Cartier-Northwest proposal, Gaz Metro told the NEB that its 151,000 residential, commercial, institutional and industrial customers could use new ability shop around for their consumption of about 212 Bcf/year. Gaz Metro described Quebec as “a captive market,” forced to rely for 95% of its gas on western Canadian supplies delivered by TransCanada PipeLines and Quebec & Maritimes Pipeline. The Montreal distributor said it has “over the past few years moved from an uncomfortable situation to a situation which is critical. Geographic location and the absence of an economically viable transportation alternative, along with major changes in the fees charged by TransCanada, have exacerbated and already difficult situation.”

Gaz Metro calculated that counting a “fair-return” application now pending before the NEB, toll increases on TransCanada since 1998 add up to a 40% increase in the costs of transporting western gas to Quebec. “A connection with a new production basin and the setting up of new transportation routes would lead to increased competition for our market and, accordingly, allow Gaz Metropolitain and its customer to finally be in a situation comparable to the other Canadian and American markets,” the Quebec distributor said.

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