NEW BRUNSWICK PREMIER PUSHING TO MAKE HIS PROVINCE THE "NEXT

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SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/CAN, EB/ESC/ISC, EB/PPD, INR/B
USDOE FOR IA (PUMPHREY, DEUTSCH)

E.O. 12958: N/A
TAGS: ENRG EPET ETRD PGOV PINR SENV CA
SUBJECT: NEW BRUNSWICK PREMIER PUSHING TO MAKE HIS PROVINCE THE "NEXT
ALBERTA"


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SUMMARY
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1. (SBU) New Brunswick Premier Shawn Graham and Energy Minister
Jack Keir are working hard to make energy the catalyst for
moving their province to economic self-sufficiency. Their
agenda calls for their province to be a reliable and long-term
electricity supplier to the northeastern United States, despite
a number of hurdles such as insufficient transmission capability
in the State of Maine, tough competition and environmental
challenges. Meanwhile, Irving Oil is exploring new refining
opportunities and, together with it Spanish partner Repsol, is
on track to begin operations at the Canaport LNG facility in
December. Critics of the Premier view his self sufficiency
agenda as overly ambitious, but with C$10-15 billion in
energy-related projects on the horizon over the next ten years,
no one is underestimating the resolve of the Graham government
to make this rags-to-riches plan a reality. END SUMMARY.

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The Plan - Laying the Groundwork
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2. (SBU) Energy matters were the main topic of discussion when
Consul General and POL/ECON Specialist visited New Brunswick
February 24-27. In private conversations with Liberal Premier
Shawn Graham, Energy Minister Jack Keir, senior bureaucrats and
industry leaders, CG received an update on the government's much
touted energy agenda. The premise of the Graham plan is to
harness the province's energy potential to achieve economic
self-sufficiency. Right now New Brunswick is one of Canada's
so-called "have-not" provinces, suffering from a lack of
development opportunities, low investment, high provincial taxes
and a dwindling (and aging) population.


3. (SBU) The energy/economic development strategy is the chief
focus of the Graham government and Keir has been quick off the
mark in laying the groundwork for the plan. First, he changed
the mindset of the energy department from its sole focus on
energy policy to an equal emphasis on the economic development
opportunities that energy could bring. Next, Keir uprooted the
entire energy department from the capital city of Fredericton
and moved it to Saint John, the de facto hub of energy activity
in the province. With the move, Keir also put together a new
management team which gives equal representation to business and
development specialists to augment the technical and policy
staff members.

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The Current Phase: Changing the Perception
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4. (SBU) In our meeting, Keir and his senior staff were upbeat
about these changes and the current phase of the plan:
increasing the province's profile in the United States. As Keir
remarked, while there are potentially new markets at home and
elsewhere in Canada, right now he sees the U.S. northeast as the
"low-hanging fruit," (i.e., the market that offers the highest
returns for a given effort). However, as Keir acknowledged, it
has been an uphill battle to convince energy industry CEOs and
policy makers that New Brunswick can be a secure and trusted
energy supplier. Undaunted, Keir believes that he and the
Premier are making progress in changing this perception. Both
travel to the United States as often as possible, and in fact
Keir had just returned from Washington just days before our
meeting. There he met with key officials of the U.S. DoE and he
was one of the speakers at the National Energy Forum, both of
which he characterized as very productive.

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So what is New Brunswick Selling?
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5. (SBU) Unlike Newfoundland-Labrador and Nova Scotia, New
Brunswick has no potentially rich supply of offshore or onshore
oil and gas resources. What it does have is a diversified
electricity generation system which Graham and Keir are anxious
to expand to meet growing energy demands in the U.S. northeast.
Central to this plan is the possibility of a second nuclear
reactor at the existing nuclear facility at Point Lepreau
outside Saint John. Lepreau I is days away from an 18-month
shutdown for refurbishing, but once it is operational again, and
possibly teamed up with a second reactor, it could be the source
for new electricity export opportunities. Keir said he was
encouraged earlier this year when the Canadian Nuclear Safety

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Commission began reviewing the design for the second reactor.
As he explained, this move meant that the province could start
recruiting potential partners for the $4 billion project and
eventually make it possible to start the search for potential
customers.

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The Barriers: The Impact of Maine's Transmission System
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6. (SBU) Keir was also candid in outlining the major hurdles in
this export plan. First, there is the lack of transmission
capability in the neighboring State of Maine, which adds
uncertainty to the prospect of increased sales. One way around
the problem would be to lay a new, sub-sea transmission line
from the Lepreau site directly into Massachusetts. This
represents an unpalatable option as Keir was quick to point out
that neither he nor the premier want to shut out Maine, which
would seriously damage the warm relationship the Premier enjoys
with Maine governor John Baldacci. Equally daunting are the
environmental considerations. Eight states in the northeastern
United States have signed on to the Regional Greenhouse Gas
Initiative (RGGI),a "cap-and-trade" regime which will
increasingly drive them to seek out cleaner power sources. Keir
is aware that this could prompt the states to discourage the
importation of so-called "dirty energy" from New Brunswick,
especially power coming from oil-fired power plants. Still
another obstacle is that New Brunswick is not the only province
looking at the "low-hanging fruit" as Keir explained Quebec has
expansion plans of its own.

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Irving Oil: Refinery and LNG Potential
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7. (SBU) While future electricity sales form the major
foundation for the New Brunswick energy growth plan, Keir also
lauded the potential of the privately-owned Irving Oil Company.
Just outside Saint John, Irving owns and operates Canada's
largest oil refinery (300K+ bbl/day) and the company is actively
considering building a second refinery at the site to supply
both U.S. and domestic markets. Irving officials told CG the
company is looking to find a partner for the project, but so far
has not yet gotten a firm commitment from any source. Should
the company eventually find the partner and pass the regulatory
process, the company could start construction in late 2009 or
early 2010.


8. (SBU) In the short term, Irving and its Spanish partner
Repsol have almost finished the Canaport LNG facility on the
outskirts of Saint John. While other LNG projects in the
northeast are stalled because of a lack of secure natural gas
supplies, Irving and Repsol have already firmed up secure gas
supplies mainly from Trinidad and Tobago. The Canaport LNG
facility is on schedule to begin operations in December 2008,
when it will start injecting one billion cubic feet of
regasified LNG per day into the New England market via the
Maritime and Northeast pipeline. This output exceeds the current
output of Nova Scotia's Sable Island offshore gas production.
Our industry contacts said Irving will have no difficulty in
expanding past its current plan for three storage tanks at the
facility to four or even five, a signal to its LNG competitors
that the company has the potential to be the major, if not the
only, LNG player in the region.

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COMMENT: The Dynamic Duo of Graham and Keir
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9. (SBU) Premier Graham's energy agenda is not just centered on
increased energy sales and exports. He also wants to see the
province become a hub for oil refining, LNG distribution, and
possibly a center for nuclear energy research and development.
Further down the road, the province could also become a conduit
for power sales from the Lower Churchill project to the United
States should Newfoundland-Labrador decide to construct a sub
sea power line to the province. Critics of the Premier view all
these ideas as overly ambitious, especially the Premier's
prediction that the province will some day become the "next
Alberta." On the other hand, with C$10-15 billion in
energy-related projects on the horizon over the next ten years,
no one is underestimating the resolve of the Graham government
to make this rags-to-riches plan a reality.


10. (SBU) Through his trips across Canada and the United States,
the Premier is developing a reputation as a highly-charged

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champion for his province. Invariably, all this attention is
increasing Graham's national stature, earning him the
distinction of being regarded one of Canada's brightest new
political stars. Also there are no arguments that Graham's
decision to appoint rookie politician Keir to head up the energy
portfolio was a wise move. Viewed as ambitious, tireless and
keenly focused, Keir has become the Premier's right hand man and
the province's best salesman in the energy sector. In all, both
Graham and Keir exude a great deal of optimism, zeal and
dedication for making this plan work. As one of our political
contacts noted, if drive and ambition were the only criteria for
a successful implementation of the Graham agenda, New Brunswick
would already be well on its way to becoming Canada's newest
"have" province. END COMMENT.
FOSTER