Reuters/Portland, Maine
Eastern Canada has joined a race to export North America’s vast natural gas riches to energy-hungry markets overseas, with four projects betting the far-flung Atlantic provinces will be the easiest route to Europe and India.
But firms behind those proposals, such as Spanish oil giant Repsol and Australia’s Liquefied Natural Gas have one major hurdle to clear: huge investments are needed to expand regional pipeline capacity to feed them, and it is unclear who will pay.
“They have come at a rush over the last four or five months,” said analyst Mark Pinney, of the Canadian Association of Petroleum Producers. “But these plants will need to get their act together quickly, both at the supply and demand end.”
The stakes are high. If successful, the projects would provide a much-needed economic boost in Canada’s Atlantic provinces, broaden the market for plentiful North American gas, and shore up energy security in parts of Europe. It effectively means, however, tapping US gas deposits that would require investing billions of dollars in pipelines crossing New England – a gas-starved US northeast with a history of blocking such investments on environmental grounds.
“The interstate pipeline companies are not going to construct facilities unless they have firm commitments,” said Thomas Kiley, president of the Massachusetts-based Northeast Gas Association.
Together, the four projects proposed for New Brunswick and Nova Scotia would take an estimated 1.5tn cubic feet of gas per year – the equivalent of three weeks’ worth of US consumption – liquefy it, and ship it abroad in tankers from Canada’s rocky coast.
The geography makes sense. The voyage from Eastern Canada to Europe is about four days shorter than from the US Gulf Coast, where a cluster of competing terminals has been proposed, and is also quicker than from US East Coast ports.
“Our advantage is location and wide community acceptance,” said Mark Brown, project director with privately-owned Pieridae Energy, which has secured environmental permits for its proposed $10bn terminal in Nova Scotia.
Slumping energy prices made shipping North America’s LNG to Asia unprofitable in recent months, but projects targeting Europe look still viable, in part because of uncertainty about supplies from Russia because of the Ukraine crisis.
Pieridae, for example, said it has signed a 20-year contract to sell 5mn tons of gas per year to Germany’s E.ON , the largest of many European utilities looking to cut dependence on Russia.
The problem is a lack of local supply. Quebec, Newfoundland and Labrador, and Nova Scotia have all imposed various forms of moratoriums on hydraulic fracturing - a process required to access shale gas deposits - over concerns about the potential impact on ground water. New Brunswick, which has one of the thickest shale gas reservoirs in North America, is poised to do the same.
With Nova Scotia’s offshore fields in decline, that leaves the vast Marcellus shale gas deposit beneath Pennsylvania, Ohio and West Virginia as the next most viable source. That, however, would require expanding or building new pipelines going through New England states that have opposed new energy infrastructure in the past.
“From a Canadian perspective, we look at it, and we think, ‘Hmm, where’s the gas going to come from to fill all these plants?’” says Pinney.
Officials at the companies have declined to detail their plans for securing supply, with Repsol – the company pushing the largest project – saying the question is still under review.
Spectra Energy’s Maritimes and Northeast pipeline is Atlantic Canada’s main connection to Marcellus gas. The 889-mile pipe now runs north to south with a capacity of 304bn cubic feet of gas per year and the company has announced plans to start pumping the other way and add capacity.
But natural gas fuels half the electricity generated in New England, and any export would vie for precious space in its already constrained pipeline network. “I wouldn’t say it’s a slam dunk,” said Spectra spokesman Steve Rankin.
New England’s pipeline capacity shortfalls sometimes climb to 1-2bn cubic feet on the coldest winter days, triggering spikes in electricity costs and factory shutdowns.
The four new eastern Canadian plants would require nearly twice the region’s current annual consumption of natural gas.
“It just doesn’t make sense to build over-sized infrastructure, potentially at a cost to ratepayers, only to have some portion of that exported,” said Greg Cunningham, an attorney with the Boston-based Conservation Law Foundation.
