A competitive market for compressed natural gas (CNG) — chiefly as a new rival against oil products — has opened for business across most of Nova Scotia. And it’s Eastern Canada’s chief oil refiner, Irving Oil, that will be delivering the trucked gas to coastal fish processors, hospitals, universities and other large commercial users as early as next year.

Construction of Irving first natural gas compression station in Nova Scotia is expected to begin once commercial negotiations are finalized. It will be the first time the businesses have access to natural gas and it comes when North American gas supplies are growing, Irving noted.

“As Irving Oil leverages abundant natural gas supplies and attractive costs, our customers who seek to increase their competitiveness by lowering their fuel costs will also benefit,” said Irving Energy’s Darren Gillis, general manager.

Deliveries will be trucked from a compression station that Irving hopes to have up and running in 2013. No location was announced. The anchor of the company’s oil operations is the largest Canadian refinery, located beside tanker docks in the New Brunswick capital of Saint John. The latest addition to the site is an import terminal for liquefied natural gas (LNG) called Canaport, which serves a re-export trade into the United States via a connection to the Maritimes and Northeast Pipeline (MNP).

The provincial government recently announced that the market for delivered gas will remain open and competitive, and this prompted Irving’s decision to begin serving Nova Scotia customers with CNG delivered by truck.

“Trucking compressed natural gas in a competitive marketplace could save our industrial sector tens of millions of dollars a year in energy costs,” said Nova Scotia Energy Minister Charlie Parker. “This makes our companies more competitive and saves our universities and hospitals money that can be spent in the classroom or on patient care.”

His government’s policy seeks to preserve the province’s fledgling market for pipeline delivered gas, barring CNG merchants from spots which are already served by the incomplete pipeline network of the local distribution utility, Heritage Gas Ltd., a subsidiary of Calgary-based AltaGas Ltd. The exclusion zone only includes fuel consumer areas — parts of Halifax, Dartmouth, Amherst and their nearby airport — that have been within low-cost reach of short spurs tacked onto the MNP route to New England from the Sable Offshore Energy Project.

In a discussion paper that led up to the government’s decision, the Nova Scotia Department of Energy reported receiving requests for an open market from several potential CNG merchants and voiced hope that energy sales competition will make gas habit-forming on the still heavily oil-dependent east coast. “Initially the business will be focused on larger industrial loads,” the department predicted. “But as the business develops there is the potential that smaller loads or even residential customers could be served. As more customers convert to natural gas by CNG, there may even be the possibility to extend the pipeline to serve these customers directly in the future.”

“Following a thorough and consultative review process, the Nova Scotia Government reached a decision which we applaud as the best option for customers,” said Gillis. “An open and competitive market will mean more competition in Nova Scotia, and we believe that fair competition drives down costs, fosters innovative solutions and helps improve delivery reliability. We’ve been servicing our Nova Scotia customers successfully since 1930, providing diesel, heating oil, propane, bunker and other products. Now, we’ll begin to provide our customers with greater access to natural gas, which will help them lower energy costs. Large commercial users in Nova Scotia who convert to natural gas could cut their annual energy bills by as much as 35%.”

Last week the provincial government said it had accepted all recommendations from an independent review of how CNG should be delivered. The report concluded that delivery to customers without pipeline access should be treated the same as fuel oil and propane delivery. The province hired William Lahey to review the options for compressed natural gas delivery for suppliers and customers. His report recommended a hybrid approach so single large-energy customers not on a pipeline can access CNG without undermining the province’s regulated pipeline distribution. Suppliers will not be allowed to distribute where customers can connect to a natural gas pipeline to protect its viability.

“I believe the market is the best option for determining the conditions under which compressed natural gas will be a realistic fuel option for large-volume energy consumers who do not otherwise have access to natural gas,” said Lahey. “The conclusions balance the interests of these businesses and institutions with the interests of those who will only have access to natural gas if we have a strong network of distribution pipelines that reach as many homes, businesses and communities as possible.”

The decision to allow an open CNG market highlights the allure that natural gas is developing on the consumer side of energy markets as a result of widespread consensus that new shale supplies spell low prices across North America for as long as anyone can foresee. By Nova Scotia standards, allowing an open market for any form of energy is a radical step. The province is renowned for adopting and enforcing strict regulation as a routine response to popular demand for controls on widely distrusted industrial sectors. CNG deliveries are to be reviewed in five years as recommended in the report, the government said.

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