Tom Adams
National Post
May 14, 2002

Open borders and deregulation are on the agenda this morning at an energy conference in Saint John, where the New Brunswick government hosts the New England governors and the Eastern premiers in a long awaited free trade initiative.

The New England governors might have to wait longer.

New Brunswick’s government has just decided to add a new item to the top of the agenda – how to cut off gas shipments to the United States.

When New Brunswick announced the conference in February, it was to address “free market competition, borderless energy flows, security of supply and environmental implications, and opportunities including infrastructure development and development of secondary industries.” Premier Bernard Lord then talked about turning New Brunswick into an “energy nucleus” for the Atlantic seaboard.

On the eve of the conference, however, the New Brunswick government turned protectionist. The output from the rapidly expanding Sable Island gas field off the coast of Nova Scotia, which is piped through New Brunswick, is largely destined for New England. Why should New England get this Canadian gas instead of us, reasons Mr. Lord?

To get an answer he’d like, Mr. Lord’s government has asked the National Energy Board to repeal its market-based gas export rules when it comes to Atlantic Canada. Instead, New Brunswick demands that the region’s gas exports be subject to regulatory controls, with the NEB in its wisdom deciding how much gas should be turned back at the U.S. border, for the benefit of Eastern Canadians. In what’s shaping up to be a free-for-all, a total of 42 governments, energy companies, and citizens’ organizations have applied to the National Energy Board for intervener status in the public hearings that will begin in Fredericton July 15.

The position of New Brunswick, as explained by its Minister of Natural Resources and Energy, Jeannot Volpé, is that “Rules to favour exports are not in [Canada’s] best interests,” and that rules to curtail exports are “not a subsidy.” The Quebec government and two pipeline companies it partly owns, Gaz Métropolitain and Enbridge Inc., have joined New Brunswick, wrapping themselves in the Canadian flag. Quebec Inc. has been trying for decades to find a rationale, or enough subsidies, to justify building a pipeline from the New Brunswick border to Quebec City. Forcing Sable Gas to flow west instead of south provides both a rationale and part of the subsidy. Eastern Canadian gas consumers would also provide a subsidy through higher rates.

Behind New Brunswick’s machinations lie a desire to boost its economy with a fresh infusion of natural gas. Yet its heavy-handed approach has not worked well before. Since Sable Island gas arrived in New Brunswick in 1999, the province’s performance has been lacklustre. Regulatory rules imposed by the provincial government prevented the local New Brunswick distributor from selling gas to consumers – instead of hooking up several thousand new customers in its first year of operation, as planned, the distributor managed only a few hundred. And legal prohibitions on cogeneration – the simultaneous production of heat and power that is booming elsewhere in the world – have stunted its development in New Brunswick. In contrast, the arrival of Sable gas in New England fueled a construction boom in cogeneration, even though Sable gas costs more in New England than in New Brunswick.

Popular sentiment in New Brunswick blames the Americans for the weak sales of gas in New Brunswick. An opinion column in the Fredericton Daily Gleaner complained, “In short, Canadian gas, primed by many millions of federal tax dollars, is bypassing New Brunswick, and it’s a hard pill to swallow.” The truth might be harder still for short-sighted nationalists to swallow: Without the demand for gas from New England consumers, Sable gas would never have been developed, and no Sable gas would be available in New Brunswick.

Atlantic Canada’s offshore gas reserves – off Sable Island and nearby locations – appear to be very large. A recent large find called Deep Panuke is scheduled to come on line in 2005 and the owner – EnCana Corp. (formerly PanCanadian) – is beating the bushes to find buyers. To carry this additional flow, the pipeline now carrying Sable gas through the Maritimes and to the U.S. Northeast has asked for permission to increase its capacity by two-thirds. A National Energy Board decision that turns back Canadian gas at the U.S. border would signal EnCana and others to do their future exploration elsewhere.

Ironically, more than Eastern Canada’s economy would suffer. The power utilities in the U.S. Northeast have been heavy polluters of the Maritimes, leading to pressure on them from environmentalists and many Canadian governments, including New Brunswick, to cut smog and mercury emissions from their coal- and oil-fired power plants. The arrival of Sable Island gas allowed New England to switch to high efficiency gas-fired industrial cogeneration – fully half of the U.S. Sable gas imports go to cogeneration – and to new natural gas networks, providing Canada with cleaner air. If New Brunswick’s protectionism prevails and offshore gas development slows or stops altogether, New England’s coal- and oil-fired power production will persist, and eastern Canada’s gas consumers will bear the cost of any uneconomic pipelines that then get built.