Border Patrol
A groundbreaking ruling on a contested export application keeps energy traffic police on its toes
Repsol asked the board to set aside the requirement for short permits by arguing that markets should be the sole deciding factor in international gas trading. The proposal triggered a lively, complicated debate among 16 industry and government participants in the Saint John hearings.
In the end, the NEB granted the long LNG re-export license but also decided to keep on enforcing a 21-year-old policy called the “market-based procedure” or MBP for short. The approach developed
out of hot debates over implementing 1985 Canadian oil and gas deregulation deals between the federal, Alberta, Saskatchewan and British Columbia governments, known as the Western Accord and the Halloween Agreement.
The pacts kept alive Canadian tradition of allowing gas supplies to be reserved for domestic requirements while easing formerly tight controls on export volumes and prices. The legacy remains enshrined in federal legislation.
The approach uses a notice and complaint procedure. It commits the NEB to intervene in the trade if Canadian consumers prove they cannot obtain gas on terms and conditions comparable to export sales, or if there are doubts about whether supplies are adequate to support foreign commitments.
In the Repsol case, the board ruled “the requirements to ensure that Canadian gas demand is satisfied, that export licenses of domestically produced gas are supported by supply arrangements, and other relevant public interest considerations are still met by the application of the MBP.”
Repsol, supported by the Canadian Association of Petroleum Producers and Irving, unsuccessfully urged the NEB to adopt a hard-core free trade doctrine that the gas market is fully deregulated and private contracts alone should determine where supplies go.
The board rejected consumer demands for Repsol to disclose a marketing agreement with Irving. The NEB decided the international trading house only had to promise to make LNG available to potential Canadian buyers as well as American customers.
But the NEB also kept open a door to intervene in the future if Canadians use the MBP’s complaint procedure. “This (acceptance of Repsol’s promise) does not preclude an interested party from raising concerns at some later date concerning terms and conditions to access the imported LNG,” the board said.
The NEB acknowledged that “the LNG imported by Repsol will be incremental to Canadian production and it may enhance the supply that is available to Canadians to meet their energy needs.” The NEB also agreed that “the potential addition of LNG supply in the Maritimes could provide a significant opportunity for future natural gas market development in that region.”
But the possible benefits did not shake the NEB’s determination to uphold the vestiges of gas trade policing retained in Canada’s 23-year-old energy deregulation policy. Creating an exemption for global merchants would require much consultation and negotiation among multiple “stakeholders” followed by legislative changes, the board said.
“Repsol did not address the impact of exporting one billion cubic feet per day, or a portion thereof, of Canadian-produced natural gas on the present and future availability of gas for Canadian requirements, even after the board requested such information,” the ruling said.
“When such gas supply and associated facilities become available to Repsol in the future, Repsol could apply at that time for a gas export license,” the NEB said.
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