CANADA

A pipeline full of trouble

Competing plans to ship Sable Island gas raise regional hackles

MARY NEMETH October 21 1996
CANADA

A pipeline full of trouble

Competing plans to ship Sable Island gas raise regional hackles

MARY NEMETH October 21 1996

A pipeline full of trouble

Competing plans to ship Sable Island gas raise regional hackles

CANADA

The riches lie under the ocean floor near Sable Island, off the east coast of Nova Scotia—some three trillion cubic feet of recoverable natural gas.

Enough to heat a million homes every day for 25 years. Enough to bring visions of prosperity to a perennially have-not province. Now, a consortium led by Mobil Oil Canada is seeking regulatory approval for a $2-billion plan to develop the Sable Island reserves. Two other groups, meanwhile, are vying for the right to spend another $1 billion to ship the gas to market. The first of those two groups filed an application with Canadian regulators last week; the other is expected to file later this year. All parties to the contest—as well as interested politicians—insist that the pipeline selection process should be based exclusively on economic and regulatory criteria. But tensions are rising—over such quintessentially Canadian issues as economic nationalism and regional sensitivities.

The debate is fuelled by one overriding question: will the Sable pipeline run through

Quebec? That is one of the proposed routes. It would mean millions of dollars in construction jobs for the province, and could turn Quebec into a major hub of natural gas distribution. But it could also have implications for national unity, by tying Quebec into a national gas grid. Western Canadian producers, meanwhile, could be obliged to help pay for a Quebec route if federal regulators rule that the cost of building the new pipeline should be shared by existing as well as new users of the main TransCanada line—a toll system known as rolling in. And the issue has also spilled onto the public stage in Nova Scotia. Premier John Savage said last week that political uncertainty in Quebec has left his government with “some very real concerns” about the proposed pipeline route through that province. For now, the premier said, Nova Scotia is withholding judgment. “But I want to make it very clear,” he declared, alluding to the hydroelectricity deal that has benefited Quebec at the expense of Newfoundland, “that under this government’s Nova Scotia-

first policy, the Sable gas project will be no Churchill Falls.” Under the first pipeline proposal, now before the National Energy Board and a joint panel set up by federal and provincial regulators, Sable gas would run 1,000 km through Nova Scotia and New Brunswick and down into New England. It is being presented in conjunction with the Mobil group’s gas development plan. Westcoast Energy Inc. of Vancouver and PanEnergy Corp. of Houston are the biggest partners in the pipeline, with Mobil holding a 25-percent stake. Called the Maritimes & Northeast Pipeline, it would tie into the North American gas grid in New England. “The pipeline proposal that we have filed,” says Patrick Langan, Maritimes & Northeast’s project director for the Canadian component of the pipeline, “is supported by supply and market and sound economics—i.e. no subsidies from existing or proposed shippers.” Subsidies—that contentious issue lies at the heart of the second proposed pipeline. It would take Sable gas 900 km through Nova Scotia and New Brunswick to Bernières, on the south shore of the St. Lawrence River at Quebec City. There, the new pipeline would hook up with the existing TransQuebec and Maritimes pipeline, which in turn hooks into the TransCanada main line that ships gas from Alberta. TransQuebec and Maritimes is co-owned by Gaz Métropolitain and Co. Ltd. Partnership of Montreal and Calgary-based TransCanada PipeLines Ltd. Proponents of the TransQuebec pro-

Gulf of St. Lawrence TransQuebec andA Maritimes pipeline Halifax Saft/e Island NOVA SCOTIA j/ Atlantic Ocean RIVAL PIPELINE PROPOSALS Maritimes and Northeast Pipeline TransQuebec and Maritimes pipeline project

ject point out that a version of their proposal was approved by the National Energy Board in 1981. They say that they could ship Sable gas to the Maritimes as well as Quebec and Ontario—where consumers would benefit from access to competing gas supplies from east and west. They also claim that they can offer Sable producers access to more markets than the competition through the TransCanada main line, including existing and proposed connections into the United States. And they say they can do it at competitive rates.

It is the National Energy Board that actually sets the rates that pipelines can charge for shipping gas. When a pipeline has built a new section, the board has traditionally ordered the pipeline to distribute, or roll in, the cost of its expansion over the entire system’s toll rates—in effect forcing both existing and new pipeline users to share the tab. Because the proposed Quebec route would connect to the main TransCanada line, western producers could end up footing part of the bill. And although the Quebec pipeline’s proponents seem anxious to find some way to structure the toll system to make it palatable to the TransCanada’s existing clients, both TransCanada PipeLines and Gaz Métropolitain say that some kind of roll in will be part of their proposal. ‘The National Energy Board has consistently maintained the roll-in approach to new facility additions on the TransCanada pipeline system,” says Thierry Vandal, Gaz Métropolitain’s director of business development. “We see no reason to depart from a principle that has served the industry quite well.”

Some producers counter that a roll in is not appropriate in this case because, unlike previous pipeline expansions or extensions,

the TransQuebec and Maritimes proposal would not give existing shippers access to new markets. The new shippers should, they say, pay for their own transportation routes. “It’s a pretty simple equation,” says Chris Peirce, vice-president of strategic planning for the Canadian Association of Petroleum Producers in Calgary. “No one would seek to pay the costs to enable someone else’s product to compete with yours.”

The issue boiled over last June when Quebec Premier Lucien Bouchard discussed the Quebec route with Prime Minister Jean Chrétien during a meeting in Quebec City. Chrétien seemed to come out in favor of the TransQuebec proposal when he said that both he and Bouchard hoped that Sable gas would be used to satisfy the needs of New Brunswick and Quebec before it is shipped to the United States. Since then, federal officials have tried to backtrack from that apparent endorsement. A spokesman for the Prime Minister’s Office said recently that Chrétien wants the National Energy Board to decide where the pipeline goes, using its usual criteria. And Natural Resources Minister Anne McLellan has adamantly denied any federal intention to meddle in the process. But during a visit to the Halifax area last week, Chrétien once again expressed what seemed to be a preference. He suggested that, if Nova Scotia were to run out of gas, it would be useful for the province to be connected to western gas supplies. “If it is economically feasible to go through New

Brunswick and join the pipeline that is close to New Brunswick in Quebec,” he added, “that will be the best option for us.” But Chrétien also insisted that “if it is not economically possible, of course it should be sold directly to the United States.” And he said that he would accept the National Energy Board’s decision.

Still, those comments prompted a swift opposition response. Reform party Atlantic issues critic Diane Ablonczy said that the people of Nova Scotia “want to control their own economic destiny and what they see here is that federal decision-making is really based on priorities other than their own interests.” In Nova Scotia, there has been concern over the Quebec option ever since Chrétien’s earlier comments in June. A pipeline routed through Que-

bec would give that province “the greater financial strength which it needs to be a separate country,” warned one letter to the editor in the Halifax Chronicle-Herald. “History will likely repeat itself with Quebec gaining processing jobs at the expense of the Atlantic region,” said another. Brian Crowley, president of the Atlantic Institute of Market Studies, a business-funded research group, argues that it is premature to judge which of the two proposals would most benefit Nova Scotia. But he also said last week that it would be better if Chrétien did not comment on the pipeline proposals “because he inflames people’s passions no matter what position he takes.”

The proposed U.S. pipeline route, meanwhile, has also raised concerns. Some analysts question whether American-owned Mobil, if it is involved in both the development and transportation of Sable gas, would have too much sway, especially over the future development of the 15 trillion cubic feet of gas that lie off Nova Scotia in addition to the Sable Island reserves. But Mobil Oil Canada’s manager of public affairs, Heather Douglas, says that Mobil was one of the companies that risked exploration money at Sable as far back as the 1960s—a long lead time for an investment. “Much of the offshore around the world is being developed by the largest companies, because they have the deepest pockets,” Douglas adds. Deep pockets, though, have so far eluded Nova Scotia, where the debate is just one more milestone on the long road towards elusive energy riches.

MARY NEMETH

in Calgary with

JOHN DeMONT

in Ottawa

and

MERLE MacISAAC

in Halifax