Canada’s National Energy Board (NEB) has concluded in a new energy market assessment that the Maritimes natural gas market is “working as well as could be expected” for a small market without gas storage facilities or a liquid spot market. There is no evidence of discrimination by exporters against domestic consumers, the NEB said in its first report on the health of the Maritimes gas market since its decision last year to reject gas export restrictions proposed by New Brunswick (see Daily GPI, Sept. 20, 2002).

The Province of New Brunswick’s application last year would have put local interests first in line for offshore Nova Scotia supplies, potentially jeopardizing millions of dollars in investments for supply development and transportation. In its denial of the application, the NEB said it was inappropriate to implement procedures that “would unduly interfere with the normal operation of the natural gas market.” However, the NEB also said it would organize a monitoring team to gather price and supply data and report publicly on the functioning of the market.

The first report finds that energy users in Maritimes provinces have access to “a diverse suite of fuels at competitive prices and natural gas must compete with well established fuels.” That competition has caused a setback in the development of healthy end-use gas markets in some cases, such as in New Brunswick, because of the high price of natural gas currently. As a result, gas markets are still quite small, which makes it uneconomic for retail providers to make long-term commitments on supply and greenfield pipeline capacity.

But the provinces have benefited significantly from the presence and growth of oil and gas development, according to the report. The oil and gas sector, together with related investments in distribution systems and facilities has provided in excess of 70% of the region’s investment over the past five years, the NEB found.

“The export market has provided the large anchor market that was necessary for the development of offshore reserves, without which the Maritimes would not have access to offshore natural gas at this time,” according to the report.

The domestic market also has benefited from the lateral policy of Maritimes and Northeast Pipeline, which has kept transportation rates to domestic users lower than they would be if tolled on a stand-alone basis. The domestic market also has enjoyed toll discounts on Maritimes.

Despite these positive factors, the NEB admitted that domestic Maritimes markets remain at a competitive disadvantage to export markets for a variety of reasons: their relatively small size, which makes transportation and investment less economic; the lack of any gas storage capacity, which means domestic consumers often have to reimburse exporters for their long-haul transportation to U.S. markets; and the absence of a liquid market, which means domestic consumers must manage their purchases based on prices in the United States.

“While these factors create special challenges for domestic buyers, they are a normal feature of a developing market characterized by relatively small population centers. The Maritimes gas market is working as well as could be expected given its geographic features and early stage of development,” NEB concluded.

“Looking to the future, the most important issue is the uncertainty surrounding the timing of the development of additional supply… Natural gas producers face considerable exploration risk and have noted that the time to obtain approvals of their projects has been, in their view, unduly long, thereby increasing the time before their exploration expenditures can be recovered. Clearly natural gas producers need to believe that an attractive combination of geological potential and a predictable development framework exists if they are to continue to invest large sums of money into exploration in the basins offshore of Nova Scotia.”

The NEB said it would continue to monitor the market to “ensure that gas sellers negotiate with Canadian buyers in good faith and that Canadians have access to Scotian offshore gas on market terms and conditions, including price, similar to those available to export buyers.”

The assessment is available on the NEB’s web site at www.neb-one.gc.ca under What’s New!

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