Nicolas Van Praet
The Montreal Gazette
May 12, 2004
Gaz Metro’s proposal for a liquefied-natural-gas terminal near Quebec City, already meeting fierce opposition from some local residents, is under further pressure by regulatory wrangling taking place hundreds of kilometres away before the Ontario Energy Board.
Some people familiar with the matter say the regulatory clash threatens to scuttle plans for the first super-cooled natural-gas terminal in Quebec. It could also bolster opponents of LNG, who claim the danger of the technology triggering catastrophic explosions far outweighs its market potential.
The threat to the $700-million terminal proposal comes from opposition to a filing last December by Enbridge Gas Distribution Inc., by far Ontario’s biggest natural-gas provider. In the filing, which it calls a discussion paper, EGD characterizes itself as Ontario’s indispensable natural-gas utility and suggests the province adopt a long-term view to support its development.
Specifically, EGD wants Ontario to remove any regulatory barrier that could prevent it from entering into contracts longer than 10 years with companies offering supply, transportation and storage of natural gas.
One such contract could be a three-way deal for the Quebec liquefied-natural-gas terminal by which Enbridge would buy gas from Gaz de France.
EGD is a subsidiary of Calgary-based pipeline operator Enbridge Inc., one of two partners with Gaz Metro in the LNG terminal planned for the Levis- Beaumont area across the river from Quebec City. The other partner in the terminal plan, called Rabaska, is Gaz de France.
EGD says it needs regulatory approval for such long-term contracts to ensure a stable supply of gas because traditional Western Canadian production could eventually dry up. The Ontario Energy Board should pave the way for those contracts if it wants to ensure consumers are protected from price volatility, EGD says.
“Financing of these projects will require long-term commitments from customers, government subsidies, or strong market confirmation of demand,” the company writes in a filing to the Ontario Energy Board.
EGD says it needs to maintain a stable base of customers before it contracts for long-term supplies. It has asked for regulatory assurances that it won’t be exposed to any extra costs if its customers switch to another provider.
Ontario, however, has one of the world’s most de-regulated gas markets. Consumers can choose to buy natural gas from a variety of providers, whether they be marketers or so-called “system gas” sellers like EGD.
Critics, including Energy Probe, a non-profit environmental and consumer group, say EGD’s request would result in re-regulation.
“Regulatory approval for a long-term contract would create a moral hazard that would discourage utility accountability, creating new risks for customers and the utility itself,” Energy Probe said in its submission last week to the Ontario Energy Board.
Ontario Energy Savings Corp. and Superior Energy Management, two independent natural-gas marketing companies, last week filed motions asking to have Enbridge’s submissions on the issue of long-term supply thrown out.
Gaz Metro officials declined to comment on whether EGD needs Ontario regulatory approval for the Rabaska terminal project to go ahead. A Web site created to explain the plan makes clear the three partners intend to sell the gas in Ontario and Quebec.
Enbridge spokesperson Jim Rennie insisted that Enbridge Inc., not Enbridge Gas Distribution, is sponsoring the project and that Enbridge could sell the gas anywhere, not just in Ontario.
“(The plan) will go ahead if we get customers for it, whether they be in Ontario or the U.S.”
But observers say it could still be difficult for Gaz Metro to win approval from the Quebec Energy Board for its plan to sell the gas if Ontario regulators dismiss EGD’s application.
“I’d be pretty skeptical for the project’s future if EGD doesn’t get approval,” one source said.
Under the Rabaska plan, liquefied natural-gas tankers would move supercold gas from a producer region like North Africa to a terminal near Levis on the St. Lawrence River. The LNG would then be stored and revaporized before being pumped in a pipeline for distribution.
Gaz de France, which has developed LNG technology and has stakes in LNG terminals around the world, would supply the terminal and own the gas, selling it in turn to Enbridge and Gaz Metro. The facility is slated to begin operation in 2008 following two years of consultations.
Several countries, including Japan, rely on LNG for part of their energy supplies and swear by the technology, by which natural gas is liquefied to -160 C. The gas shrinks vastly on cooling, making it easier to transport. According to Gaz de France, a typical LNG cargo ship can carry enough gas to fuel a city of 200,000 people for one year.
Commercial interest in the technology is surging again in North America after four LNG import terminals were built in the U.S. in the 1970s.
But that hasn’t prevented opponents from rallying to fight it. Residents of Harpswell, Me., a small fishing town, voted in March to reject a proposal for an LNG terminal near their community. Others proposals have also been nixed in the past over concerns about cost or safety.
Residents near Quebec City now appear to be gearing up for a fight of their own.
Accidents involving LNG have been rare. But they can be devastating when they occur. In January, an explosion ripped through the state-owned Skikda LNG plant in Algeria, killing at least 23 people. It was considered the worst accident at an LNG site in nearly 30 years.