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Cablegate: Atlantic Canada: Two Lng Projects Eye New England Market

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS HALIFAX 000199

SIPDIS

DOE FOR POLICY AND INT'L (PUMPHREY AND DEUTCH)
EB/ESC/IEP/ESC FOR MCMANUS AND ERVITI
FOR WHA/CAN

E.O. 12958: N/A
TAGS: EPET ENRG SENV PGOV PREL CA US
SUBJECT: ATLANTIC CANADA: TWO LNG PROJECTS EYE NEW ENGLAND MARKET

REF: HALIFAX 040


1. SUMMARY: The conditional approval of two LNG projects in
Atlantic Canada, could substantially increase gas supplies in
the U.S. northeast. Irving Oil and Access Northeast both say
when their respective projects become operational in 2007, they
will produce as much as two billion cubic feet per day of
natural gas, the bulk of which will be destined for the United
States.
END SUMMARY

2. New England could see substantially increased supplies of
natural gas from Atlantic Canada now that federal and provincial
regulatory bodies have approved two liquefied natural gas (LNG)
projects. On August 6, Irving Oil of Saint John New Brunswick,
part of the Irving family business empire, announced it had
received regulatory approval for its proposed LNG terminal. The
Irving project, the first of several LNG projects currently
proposed for Northeastern North America to get the green light,
will be situated at the company's existing Canaport deepwater
marine terminal near Saint John, and 65 miles from the Maine-New
Brunswick border.

3. Under the proposed plan, Irving will import natural gas by
tanker in a liquid state, then warm it back into a gas. The gas
would then be transmitted through the existing Maritimes and
Northeast Pipeline (M&NEP) which currently transports gas from
offshore Nova Scotia to New England and the relatively small
regional market in Atlantic Canada. The expected capacity of
the Irving terminal would be as much as one billion cubic feet
of natural gas per day once it becomes operational in 2007.
Although there could be some increased local demand for the gas,
the bulk of the output would be destined for the Northeastern
U.S. market.

4. The second approved LNG proposal is that planned by Access
Northeast Energy Incorporated (ANEI) which wants to develop a
terminal in the Strait of Canso at Bear Head, Nova Scotia,
approximately 140 miles north of Halifax. ANEI, a
privately-owned Canadian company, received its approval on
August 9 for a project similar to Irving's in that it would
involve shipping gas to a marine terminal, converting it and
sending it over the M&NE pipeline. Like the Irving proposal,
the output from the Bear Head project could be as much as one
billion cubic feet per day, with the project also coming on
stream by 2007.

5. Both projects will still have some hurdles to cross. For
Irving, its approval from the government of New Brunswick comes
with 24 conditions, primarily environmental and safety-based,
but Irving officials believe they will have no difficulty in
meeting these requirements. ANEI will also have to satisfy
similar environmental conditions dictated by the government of
Nova Scotia. On the economic side, M&NEP would have to expand
its pipeline capacity to handle what could be as much as two
billion cubic feet a day that the two plants would produce.
Pipeline officials have already said that they would be eager to
look at expansion proposals. Also, both Irving and ANEI will
have to get signed contracts for supplies of LNG and also firm
up marketing contracts.

6. COMMENT: The approval of these two Atlantic LNG projects
may be the first of several. While some analysts believe that
the North American market can definitely sustain more than two
LNG plants in the region, others doubt that more LNG terminal
projects in Nova Scotia would be economically viable. For now,
all eyes are on Irving and ANEI to see just how difficult it
will be for these first two projects to arrange financing and
get up and running. Irving has tried to steal a march on rivals
and gain the advantage of being first into the market. Given a
relatively cooperative relationship with regulators in New
Brunswick, its project may be able to come on stream faster than
ANEI. END COMMENT

HILL

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