Maritimes & Northeast Pipeline LLC Monday protested Quoddy Bay LNG’s use of the pipeline’s FERC-approved expansion project as a pawn in an international dispute with Canada over the use of its waterways by U.S.-bound liquefied natural gas (LNG) tankers.

In March, Quoddy Bay LNG asked the agency to prohibit the shipment of natural gas from Irving Oil Ltd.’s and Repsol’s LNG project in St John, NB, on Maritimes’ expansion project in the U.S. Northeast, until the Canadian government has settled the dispute to Quoddy Bay’s satisfaction (see Daily GPI, March 27).

The Maritimes & Northeast Phase IV expansion, which FERC approved in February, would double the capacity of its system to accommodate regasified LNG from the 1 Bcf/d Canaport LNG import facility to supply the U.S. Northeast (see Daily GPI, Feb. 16).

Quoddy Bay implored FERC to place a “reciprocity condition on the authorizations to construct the pipeline facilities such that while construction [of the Maritimes facilities] can proceed, no gas from Canada will be permitted to flow through the new facilities until the Canadian government-created problem of denying innocent passage to LNG carriers through [Head Harbour Passage] is removed on a timely basis.”

Head Harbour Passage is a dangerous stretch of the Passamaquoddy Bay, which straddles the U.S.-Canadian border, that Quoddy Bay is seeking to use to deliver LNG to its proposed terminal site in Maine.

“The questions of international law raised by Quoddy Bay are not within the Commission’s jurisdiction, and the actions of the Canadian government to which it objects are not relevant to the Phase IV project,” Maritimes said in its April 23 filing [CP06-335].

“Granting Quoddy Bay’s requested relief would be directly contrary to the Commission’s policy of encouraging the development of energy infrastructure project, and could block construction of the Phase IV facilities and harm Northeast gas consumers,” the pipeline noted. It urged FERC to “promptly reject” Quoddy Bay’s request.

“Construction of the related Canaport terminal is well advanced and both the Canaport and Phase IV projects are on schedule for start-up in the fourth quarter of 2008. The Commission should not allow Quoddy Bay to create uncertainty for the Phase IV project by interjecting an issue at this late date that is wholly unrelated to the Phase IV project and that neither Maritimes nor this Commission has the ability to resolve,” Maritimes said.

Quoddy Bay proposes to build a 2 Bcf LNG import terminal on a Native American reservation at Split Rock, ME, and a storage project in Perry, ME. The 15-acre site abuts the Passamaquoddy and Cobscook bays. LNG tankers would have to travel through Canadian waters to reach Quoddy Bay’s terminal site.

In February, Canadian Ambassador to the U.S. Michael H. Wilson said Canada would not permit large LNG tankers to enter Passamaquoddy Bay off the coast of southwestern New Brunswick due to the environmental and navigational risks (see Daily GPI, Feb. 16). Wilson said Canada was willing to work with the United States to meet its energy needs, but he issued a legal threat.

The Canadian government “will not permit LNG tankers to pass through Head Harbour Passage,” Wilson wrote. “We are therefore prepared to use domestic legal means to address our concerns and prevent such passage from occurring.”

In a recent letter to Quoddy Bay, the U.S. Department of State said it would continue to assert U.S. rights under international law and defend “innocent passage” of U.S.-bound LNG tankers through Head Harbour Passage (see Daily GPI, April 9).

“We have repeatedly told Canadian officials that your [LNG terminal] project is subject to ongoing Federal Energy Regulatory Commission review and that your permit request should be allowed to go forward and conclude normally, without any prejudgment, outside political or other extraneous interference,” wrote Paul E. Simons, deputy assistant secretary for energy, sanctions and commodities at the State Department.

“My deputate, the Bureau of Western Hemisphere Affairs, and our embassy in Ottawa and consulate in Halifax have been very engaged both on the legal aspects of the transit issues, and on the issues of transparency and fairness that are also raised in this dispute,” he said. “The department as a whole has raised the issue multiple times with Canada since last summer.”

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