Energy East: A Pipeline to China

8 02 2015
Atlantic Canada: an energy pathway to Asia
STEWART BECK COMMENTARY

Crude oil prices have dropped more than 50 per cent since June to around US$50 per barrel, causing some analysts to predict doom and gloom for Canada’s oil and gas industry and economy as a whole. Newspapers across the country have highlighted layoffs, delays in new projects, and provincial budget deficits as oil sands producers and liquefied natural gas (LNG) export proponents cut costs to reflect this new pricing.   However, declining oil and LNG prices should not discourage the Canadian energy industry from aggressively pursuing energy exports to Asia. Oil and natural gas demand in the region will be strong, doubling and tripling respectively between 2010 and 2035, according to the Asian Development Bank.   To enhance energy security, Asian buyers will also source Canadian oil and gas as a means of diversifying the countries from which they import energy. There will be a market for Canadian oil and gas, if only we can build the necessary export infrastructure.   While it may be surprising to some, Atlantic Canada has the potential to become Canada’s hub for oil and gas exports to Asia. In fact, the region already sells some of its offshore oil to non-US markets. Husky Energy Inc. exported one million barrels of oil to India from its oil fields off the coast of Newfoundland in 2013. And, if the TransCanada’s Energy East Pipeline is built between Alberta and New Brunswick, western Canadian oil could be exported from Saint John.   Although Atlantic Canada has yet to export gas to Asia, there are currently four LNG export projects at various stages of development in the region. These projects have a number of advantages.   They are closer to India and Europe than are export terminals in BC and the east coast of the US. Moreover, they have already attracted concrete attention from Indian and European buyers. India’s H-Energy is proposing to build a 13.5 million metric tonne per annum facility in Nova Scotia, while Germany’s E.ON AG has agreed to buy five million tonnes of LNG per annum for 20 years from Goldboro LNG.   Compared to their BC-based counterparts, LNG projects in Atlantic Canada also have timeline and cost advantages because they already possess some pipeline and export infrastructure, in particular access to the Maritimes and Northeast Pipeline that runs from Nova Scotia through New Brunswick and into the US to the Boston area. If this pipeline is reversed, projects could import cheap and abundant gas from the northeastern US for processing into LNG.   However, the development of both oil and gas exports from Atlantic Canada faces some challenges. The first is strong competition for buyers amongst a growing number of LNG projects around the world. Atlantic Canadian projects will need to keep their costs as low as possible in order to provide LNG to buyers at a competitive price.   Second, Atlantic Canada does not produce sufficient gas to meet demand in the region and to fuel exports.   Projects will need to import US gas into Canada for processing into LNG. While there is some debate as to whether Canadian projects require approval from US authorities to import gas for this purpose, two Nova Scotia LNG projects have filed applications with the US Department of Energy.   Finally, pipeline expansions will be necessary if LNG projects in Atlantic Canada are to provide tidewater access for stranded western Canadian oil and gas assets or to source very large quantities of gas from northeastern United States. These pipelines are expensive, involve substantial financial risk for individual companies, and are highly susceptible to challenges from aboriginal and environmental groups.   These challenges are not insurmountable and Canadian provincial and federal governments can play a role in helping to overcome them. They can reduce project costs through ensuring that regulatory processes are transparent and efficient and serve both domestic and exports markets. They can take action to further attract both LNG buyers and capital by highlighting Atlantic Canada’s oil and LNG export industries in trade promotion activities abroad. And they can work together to develop a positive relationship with US counterparts whose collaboration will be necessary for ensuring that Canada can access US gas supplies.   Canadians cannot lose sight of the long-term opportunities in Asia’s oil and gas markets. Oil and gas export projects in Atlantic Canada have the potential to get Canada into the energy export game by leveraging existing infrastructure and geographical proximity to European and Indian markets. Provincial and federal governments should facilitate these projects, while continuing to explore all the options for exporting Canada’s landlocked gas assets to Asia and other international markets.   STEWART BECK is president of the asia Pacific Foundation.

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The Canaport LNG terminal in east Saint John on the Bay of Fundy is seen here. The Asia Pacific of Canada predicts that Atlantic Canada will play an increasing role in energy exports in the near future. Photo: Cindy Wilson/telegraPh-Journal

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