US embassy cable - 04HALIFAX199

UNCLAS HALIFAX 000199 
 
SIPDIS 
 
DOE FOR POLICY AND INT'L (PUMPHREY AND DEUTCH) 
EB/ESC/IEP/ESC FOR MCMANUS AND ERVITI 
FOR WHA/CAN 
 
E.O. 12958: N/A 
TAGS: EPET, ENRG, SENV, PGOV, PREL, CA, Petrolium, Energy, Canada-US Exchange, Trade 
SUBJECT: ATLANTIC CANADA: TWO LNG PROJECTS EYE NEW ENGLAND MARKET 
 
REF: HALIFAX 040 
 
 
1. SUMMARY:  The conditional approval of two LNG projects in 
Atlantic Canada, could substantially increase gas supplies in 
the U.S. northeast.  Irving Oil and Access Northeast both say 
when their respective projects become operational in 2007, they 
will produce as much as two billion cubic feet per day of 
natural gas, the bulk of which will be destined for the United 
States. 
END SUMMARY 
 
2. New England could see substantially increased supplies of 
natural gas from Atlantic Canada now that federal and provincial 
regulatory bodies have approved two liquefied natural gas (LNG) 
projects.  On August 6, Irving Oil of Saint John New Brunswick, 
part of the Irving family business empire, announced it had 
received regulatory approval for its proposed LNG terminal.  The 
Irving project, the first of several LNG projects currently 
proposed for Northeastern North America to get the green light, 
will be situated at the company's existing Canaport deepwater 
marine terminal near Saint John, and 65 miles from the Maine-New 
Brunswick border. 
 
3.  Under the proposed plan, Irving will import natural gas by 
tanker in a liquid state, then warm it back into a gas.  The gas 
would then be transmitted through the existing Maritimes and 
Northeast Pipeline (M&NEP) which currently transports gas from 
offshore Nova Scotia to New England and the relatively small 
regional market in Atlantic Canada.  The expected capacity of 
the Irving terminal would be as much as one billion cubic feet 
of natural gas per day once it becomes operational in 2007. 
Although there could be some increased local demand for the gas, 
the bulk of the output would be destined for the Northeastern 
U.S. market. 
 
4.  The second approved LNG proposal is that planned by Access 
Northeast Energy Incorporated (ANEI) which wants to develop a 
terminal in the Strait of Canso at Bear Head, Nova Scotia, 
approximately 140 miles north of Halifax.  ANEI, a 
privately-owned Canadian company, received its approval on 
August 9 for a project similar to Irving's in that it would 
involve shipping gas to a marine terminal,  converting it and 
sending it over the M&NE pipeline.  Like the Irving proposal, 
the output from the Bear Head project could be as much as one 
billion cubic feet per day, with the project also coming on 
stream by 2007. 
 
5.  Both projects will still have some hurdles to cross.  For 
Irving, its approval from the government of New Brunswick comes 
with 24 conditions, primarily environmental and safety-based, 
but Irving officials believe they will have no difficulty in 
meeting these requirements.  ANEI will also have to satisfy 
similar environmental conditions dictated by the government of 
Nova Scotia.  On the economic side, M&NEP would have to expand 
its pipeline capacity to handle what could be as much as two 
billion cubic feet a day that the two plants would produce. 
Pipeline officials have already said that they would be eager to 
look at expansion proposals.  Also, both Irving and ANEI will 
have to get signed contracts for supplies of LNG and also firm 
up marketing contracts. 
 
6.  COMMENT:  The approval of these two Atlantic LNG projects 
may be the first of several.  While some analysts believe that 
the North American market can definitely sustain more than two 
LNG plants in the region, others doubt that more LNG terminal 
projects in Nova Scotia would be economically viable.  For now, 
all eyes are on Irving and ANEI to see just how difficult it 
will be for these first two projects to arrange financing and 
get up and running.  Irving has tried to steal a march on rivals 
and gain the advantage of being first into the market.  Given a 
relatively cooperative relationship with regulators in New 
Brunswick, its project may be able to come on stream faster than 
ANEI.  END COMMENT 
 
HILL