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
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