US embassy cable - 03HALIFAX52

UNCLAS HALIFAX 0052 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFED 
 
DEPT FOR EB, EB/ESC, AND WHA/CAN 
DOE FOR I/A (BAILEY/DEUTSCH) 
DEPT PLS PASS ERC FOR KELLY/LEKANG 
 
C 0 R R E C T E D  C O P Y -  CAPTION/PARA SBU ADDED 
 
E.O. 12958: N/A 
TAGS: ENRG, EPET, PGOV, ETRD, CA, US, Energy, Petrolium 
SUBJECT:  NOVA SCOTIA ENERGY MINISTER STILL OPTIMISTIC 
ON DEEP PANUKE GAS PROJECT 
 
REF:  02 Halifax 0307 
 
1.  SENSITIVE BUT UNCLASSIFIED. 
 
2.  (SBU) SUMMARY:  The Nova Scotia provincial government remains 
optimistic about the future of the Deep Panuke offshore 
natural gas project despite EnCanaQs decision to halt work 
for the time being.  The province is eager to persuade USG 
officials of Atlantic CanadaQs importance in ensuring a 
secure, long-term energy supply for North America.  (END 
SUMMARY) 
 
3.  (SBU) Nova ScotiaQs newly appointed Energy Minster, Ernie 
Fage, focused on the Deep Panuke offshore natural gas 
project during his first meeting with CG on February 27. 
Fage acknowledged that he has taken over the energy 
portfolio from his predecessor Gordon Balser at a difficult 
time for the province's energy sector.  Just the previous 
day, federal and provincial regulators agreed to 
discontinue their public review of the Deep Panuke project 
at the request of the projectQs principal sponsor, the 
EnCana Corporation of Calgary.  The company announced on 
February 14 that it was asking for the "time-out" while it 
undertook a comprehensive review of the project.  Company 
officials cited concerns over the availability of 
sufficient gas reserves to make the project economically 
viable. 
 
4.  (SBU) Minister Fage admitted that the main problem lies 
in disappointment in some quarters over the lower-than- 
expected quantities of new, exploitable natural gas 
reserves discovered thus far in the areas offshore Nova 
Scotia.  Estimates of the recoverable portion of this gas 
field have been declining from the 1.2 trillion cubic feet 
of gas originally projected.  EnCana's had initially hoped 
to begin supplying gas to the U.S. northeast by 2006, but 
the company now has no idea of the new start-up date. 
 
5.  (SBU) Despite the obvious bad news to Nova Scotia's 
developing energy sector, Minster Fage said he agreed with 
industry observers that that EnCana's delay was primarily a 
business decision.  The minister acknowledged that 
uncertainty over the size of the gas reserves was making 
Deep Panuke less attractive than EnCana's other investments 
elsewhere, such as in the North Sea and the Gulf of Mexico. 
He also speculated that the company, which just came into 
existence last year through a merger between PanCanadian 
and Alberta Energy Company, may still be sorting out its 
priorities and moving those with a quicker return on 
investment to the top of the list. 
 
6. (SBU) Taking a long-term view, Fage echoed comments by many 
in the industry who believe that Deep Panuke may follow the 
model of the Sable Island project, whose development 
languished in the doldrums for years before the discovery 
of new reserves and changing economic conditions propelled 
the project into the production phase.  Just how long the 
delay will be for Deep Panuke, the Minster predicted, might 
depend on world energy prices.  Equally important will be 
the results of EnCana's various exploratory drilling 
activities in the Nova Scotia offshore areas, as well as 
those of other companies determined to find economically- 
viable natural gas there.  Fage said he expected that there 
will be 8-10 new exploratory wells this year, bringing the 
total value of work commitments to the level of C$1.5 
billion. 
 
7.  (SBU) COMMENT:  While some of FageQs comments about Deep 
Panuke may reflect the provinceQs forced optimism, the 
overall prospects for the offshore energy sector in 
Atlantic Canada remain very strong.  The Minister displayed 
eagerness to get the message across to senior USG officials 
that this region can play a vital role in producing secure, 
long-term energy supplies for North America.  Fage will be 
traveling to Houston and Washington in March, then 
attending the Offshore Technology Conference in Houston in 
May.  CG offered to help arrange appointments for him with 
appropriate USG federal officials.  The Minister promised 
to get back to us with his schedule.  (END COMMENT) 
KASHKETT