NEWS FROM ATLANTIC CANADA'S ENERGY SECTOR

UNCLAS SECTION 01 OF 03 HALIFAX 000058 SIPDIS STATE FOR WHA/CAN, EB/ESC/ISC USDOE FOR IA (DEUTSCH) E.O. 12958: N/A TAGS: EPET ENRG PGOV CA SUBJECT: NEWS FROM ATLANTIC CANADA'S ENERGY SECTOR REF: HALIFAX 0045 HALIFAX 00000058 001.2 OF 003 -------------- SUMMARY: -------------- ¶1. With annual energy exports from Atlantic Canada to the United States now exceeding $14 billion, the region is poised to become an even more important energy supplier in the future. This cable reports on the latest developments across the region. Overall, it has been a busy summer with good and bad news from Nova Scotia's offshore sector. The province received its first cash from a new federal-provincial offshore agreement, but it also received money from penalties levied against three companies for not fulfilling their exploration commitments. While that was a stinging example of the slowdown in offshore exploration, there was some good news as two U.S. companies were the successful bidders for offshore parcels near Sable Island. There is also new optimism in Nova Scotia's onshore oil and gas sectors. In LNG news, the Quoddy Bay LNG project has been delayed while Newfoundland-Labrador's Grassy Point LNG project has received provincial approval. ¶2. In other energy sectors, parties interested in developing the Churchill Falls project now know the guidelines that will be used to conduct the environmental assessment of the project. Work on New Brunswick's Point Lepreau nuclear power plant refurbishment project is on schedule and the province is seeing some new export possibilities with the proposed expansion of the Maine power grid. At the same time, New Brunswick officials are pondering the merits of turning to the private sector to develop new power generation projects rather than involving its financially-strapped utility. Nova Scotia's utility, investor-owned Nova Scotia Power Inc., has a new CEO, who takes over the helm at a time when there is new emphasis in the province on developing alternative power sources. END SUMMARY -------------- -------------- Good and Bad News from Nova Scotia's Offshore Sector -------------- -------------- ¶3. The government of Nova Scotia released a budget update on August 5 to include new money from its offshore sector. The province just received $234.4 million from the federal government as a result of an agreement both levels of government signed on June 13 that ended a decades-long dispute over offshore payments. This issue began in 1986 when Nova Scotia gave up its right to any provincial (Crown) share of offshore projects on the assurance that the federal government would compensate the province for doing so. The compensation plan never materialized, and after years of political wrangling, in January 2008, both levels of government agreed to appoint a joint panel to settle the issue. The panel eventually worked out an agreement that will give the province $870 million - $234.4 million upfront, with the rest to be paid out over 15 years. Furthermore, the funds will be excluded from any equalization payments the province will receive from Ottawa, a contentious factor in previous attempts to resolve the issue. ¶4. Nova Scotia also got another $107 million in extra cash from its offshore, although not the way provincial politicians and industry stakeholders had hoped. On July 28 ExxonMobil Canada, Marathon Canada and Imperial all let their exploration licenses expire which saw them pay the province $107 million in penalties for not having fulfilled their drilling commitments. That leaves just three companies holding exploration licenses but none are actively engaged in exploration work: Canadian Superior, BepCo Canada and EnCana. BP Canada and Chevron also hold acreage but it is on the Canadian side of Georges Bank in the Gulf of Maine, an area under a federal-provincial moratorium. There was some good news on July 10, however, when two U.S. companies, partners Ammonite Corporation and Catheart Energy, were the successful bidders for two offshore exploration parcels near Sable Island. Under the terms of their bid, the companies are committed to spending $103 million and $114 million respectively in the search for hydrocarbons. Ammonite is a small, private petroleum exploration company headquartered Connecticut, while partner Catheart Energy is based in Texas. -------------- -------------- Onshore oil and gas: New Optimism for Nova Scotia -------------- -------------- ¶5. While Nova Scotia's offshore exploration scene has slowed, there is increased interest in the potential of the province's onshore oil and gas reserves. Unlike in neighboring New Brunswick, there has never been a commercial onshore discovery in Nova Scotia. Now three Calgary-based firms are hoping to change that: Triangle Petroleum Corp., Stealth Ventures and the HALIFAX 00000058 002.2 OF 003 newest player, Forent Energy. Triangle announced in June that it plans to spend $35 million to drill up to six wells in its search for shale gas; Stealth Ventures is exploring the potential of developing an old coal mine that contains an estimated 30 billion cubic meters of coal-bed methane gas; and, on July 16, Forent received approval from the provincial government for an exploration program for eastern Nova Scotia. -------------- -------------- LNG News: Quoddy Project Delayed/NL Project Clears a Hurdle -------------- -------------- ¶6. The members of a New Brunswick group fighting the construction of three proposed LNG terminals in Maine are encouraged by the news that one of the companies is delaying its project. Quoddy Bay LNG announced on July 16 that it would delay upcoming hearings by the State of Maine because it has not finalized gas supplies. A spokesperson said the company cannot determine the precise chemical composition of the gas or what processing equipment would be required until it can get a supplier. Inflation in construction costs was another factor in the decision. The company said it will use the time to review its development plan which may include co-locating its project with the other proposals: Downeast LNG and Calais LNG. In other LNG news, on July 7 the Newfoundland-Labrador provincial government approved the environmental assessment plan for the proposed LNG terminal in Grassy Point Newfoundland-Labrador. The proponent, Newfoundland LNG, is still waiting for the federal environmental assessment to be finished. -------------- - Update on Lower Churchill and Lepreau Projects -------------- - ¶7. On July 15, the Canadian Environmental Assessment Agency and the Newfoundland-Labrador Dept. of the Environment issued the final guidelines for the preparation of the Environmental Impact Statement for the Lower Churchill hydro project. The guidelines will provide direction to the eventual proponent of the project and will identify the information that will be required in the statement of the anticipated effects of the project on the environment. In other energy project news, New Brunswick Power officials have said that the $1.4 billion Lepreau nuclear power plant refurbishment project is on schedule. The fuel and heavy water have been removed from the plant and the project has now moved to the major work - refurbishment of the reactor itself. -------------- Future Electricity Exports from New Brunswick -------------- ¶8. New Brunswick is seeing the possibility of new U.S. export opportunities with the news that two private Maine utility companies want to upgrade their power grid. Central Maine Power and the Maine Public Service Company announced on July 3 they are proposing to invest $1.9 billion in a project which would connect northern Maine to the rest of the State's power grid for the first time. Should the project go ahead, the two companies would also look at making a connection to neighboring New Brunswick. If that goes ahead, it would give New Brunswick some new capacity to expand its exports to New England. ¶9. In planning for future export sales, New Brunswick government officials have said the province will soon have to decide on just what role its provincially owned power utility, New Brunswick Power, will play in generating more electricity for export. There is concern over the ability of NB Power to take on new projects given its current fiscal status. In July the New Brunswick cabinet approved more than $600 million in loans to the utility: $200 million towards the Lepreau refurbishment project, another $230 million to pay for replacement fuel while Lepreau is offline and another $190 million to refinance the utility's debt which now stands at $3.4 billion. The alternative to having NB Power build new generation capacity would be for the province to invite the private sector to get involved. Provincial officials point to the fact that there is already private interest in a possible second reactor at Point Lepreau and in developing new wind projects. -------------- News from Nova Scotia Power Inc. -------------- ¶10. The former President and CEO of Bangor Hydro, Rob Bennett, is now the new top executive at Nova Scotia Power Inc. (NSPI). Both Bangor Hydro and NSPI are owned by Emera, a Nova Scotia energy company. Bennett, a long-time NSPI executive and Nova HALIFAX 00000058 003.2 OF 003 Scotia native, went to Bangor Hydro in 2002 to oversee Emera's takeover of the utility. Also NSPI announced on August 1 that it plans to use more biomass, including wood waste, to provide electricity to power homes in the province. NSPI said it will seek proposals from various sectors and independent power producers for renewable energy projects fueled by biomass. Since 2003, NSPI has signed agreements with independent power producers for more than 300 megawatts of electricity from renewable sources. Most of the agreements are for energy generated by wind, but also include landfill gas and biomass. -------------- COMMENT: -------------- ¶11. Atlantic Canada clearly has great potential to be a secure, long-term energy supplier for the United States--especially for New England. U.S. Energy Under Secretary Albright underscored this theme during his June visit to Saint John, New Brunswick, when he described the province as a very valuable energy partner with the New England states. Newfoundland-Labrador and Nova Scotia are similarly poised to be our strong energy partners. The combined total of annual energy exports to the U.S. from Atlantic Canada already exceeds $14 billion, with each Province focusing on different energy exports: electricity from New Brunswick, oil from Newfoundland-Labrador, and natural gas from Nova Scotia. There are prospects for future growth in several areas (reftel),but much will depend on how the demand for energy in the U.S. northeast shapes up in the coming months and on overall developments in global energy markets. END COMMENT FOSTER