Border Patrol
A groundbreaking ruling on a contested export application keeps energy traffic police on its toes
A landmark natural gas case has served notice that energy free trade remains less than total. The National Energy Board still stands on guard, enforcing a legacy of protecting supplies for Canadian consumers.
The ruling stopped an attempt by international merchants and Alberta allies to open a hole in border policing through an imminent New Brunswick entry into global traffic in liquefied natural gas. The NEB laid down the law this fall after the first public hearings in nine years on a contested export license application.
Under the decision, handed down without political fireworks, re-exports to the United States of foreign-sourced LNG cargos unloaded at a new terminal in Saint John will be subject to review. Traders will need separate export permits to replace tanker deliveries by substituting Canadian production from the western provinces or the Sable Offshore Energy Project east of Nova Scotia’s Atlantic coastline.
Since border policing has the potential to prevent quick trading moves like supply switching, it was easy to see why international gas merchants hoped to eliminate it entirely.
Asia-bound LNG cargoes, with prices indexed to oil, fetched nearly $25 per thousand cubic feet at times this summer and fall. Canadian gas, with no such link to oil, languished as low as $5 to $6. If such huge price gaps open up again in the future, global merchants could more than double their money by diverting LNG tankers from New Brunswick to Japan and filling U.S. orders at the Saint John terminal with Alberta or Nova Scotia gas.
The NEB decision established rules for an emerging Canadian role as a middleman in global gas traffic between overseas suppliers and U.S. buyers.
The new function is scheduled to start on a large scale – handling up to 1.2 billion cubic feet per day, or the gas equivalent to 200,000 barrels of oil daily – by the end of this year. Flows will begin after completion of Canada’s first LNG import facilities, including the Canaport terminal at Irving Oil’s Saint John refinery and the Emera Brunswick Pipeline to the northeastern U.S.
Repsol Energy Canada Ltd. – an arm of Spain’s Repsol group, key sponsor of the projects and a top LNG producer – requested a 25-year license to re-export all gas arriving at Canaport, as part of a multinational marketing program for growing output offshore of Trinidad and Tobago.
The global scheme, and concerns raised by Atlantic region consumers and governments, made the NEB revisit cornerstones of Canadian energy trade policy and its own role.
Questions about the basics had not been raised for nine years. Commitments of Canadian production to the U.S. since 1999 have been for periods of two years or less. The board’s border patrol policy defines those transactions as too brief and small to affect gas reserves for future Canadian needs.
Two-year export licenses are granted as matters of administrative routine, with no formal public notices or hearings required. Instead of securing longer contracts and board licenses, marketers have maintained export volumes by repeatedly obtaining short-term permits. They include reporting rules that enable the NEB to monitor the gas trade and Canadian supplies.
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