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Gas industry sees risk in vision for Energy East oil line

It's a $1.2-billion investment to construct a nitrogen fertilizer plant in Bécancour, spearheaded by the Indian Farmers Fertilizer Co-operative (IFFCO) and its Canadian partner, La Coop fédérée. And in this central Quebec town, hit hard by the closing of the province's only nuclear plant, this new business is welcome.

Its construction will employ 1,500 workers over three years. Once the plant starts running, in 2017, it will employ more than 200 people.

But there is a snag. Producing urea requires water, air and natural gas. Lots of natural gas. Between 25 and 30 billion cubic feet (bcf) a year, or close to 15 per cent of Quebec's total annual gas consumption, according to Gaz Métro LP estimates.

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And the province's distributor isn't sure it can sell to IFFCO Canada the volume of natural gas needed for the plant, at the reasonable price IFFCO Canada expected, if the existing TransCanada Corp. gas pipeline is converted to oil as proposed in its $12-billion Energy East project.

"In peak winter time, the TransCanada mainline represents 40 per cent of Quebec and Ontario's consumption needs," says Patrick Cabana, Gaz Métro's vice-president for supply and regulatory affairs.

TransCanada's chief executive, Russ Girling, has portrayed Energy East as a nation-building project. The west-to-east pipeline, which would ship 1.1 million barrels of oil per day, has pleased Canadians at both ends of the country. Alberta and New Brunswick are thrilled, as western oil will find a new export outlet through a deep-water terminal to be built in Saint John.

Yet, some parties in between aren't cheering. In particular, industrial gas users in Ontario and in Quebec as well as the three gas distributors that serve them – Union Gas Ltd., Enbridge Gas Distribution Inc. and Gaz Métro. If their concerns are ignored, this will spell trouble for TransCanada as it seeks to get a quick nod from Ontario and Quebec.

So great a concern is Central Canada's gas supply that, in a rare move, Gaz Métro and Union Gas Ltd. are now considering construction of their own 13-kilometre pipeline to bolster access to the natural gas hub of Dawn, Ont.

If that project, unveiled on Wednesday, were to attract enough market interest, the two gas distributors will go ahead with the $300-million investment.

But that is just a patch on a bigger problem.

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"As of Nov. 1. 2015, we don't even have enough guaranteed capacity to serve our current customers' consumption," says Mr. Cabana.

For customers such as IFFCO Canada, for which natural gas represents close to half of their production costs, this uncertainty is unnerving.

"IFFCO came to Quebec because it had access to affordable natural gas in large quantities. If that is compromised, it will put our investment into question, although we are not there yet," says IFFCO Canada spokesperson Hélène Laplante.

Mr. Girling sought to reassure gas distributors and consumers alike when he unveiled TransCanada's ambitious pipeline project on Thursday.

He pledged that TransCanada will meet its firm natural gas contractual obligations.

The company will also "work to ensure sufficient new capacity is added to our system to accommodate customers requiring capacity over and above the firm capacity they currently contract for."

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But the issue has never been one of natural gas availability; the concern centres on price.

Calgary-based TransCanada and its central Canadian distributors have been squabbling about this for months.

According to the three distributors, who filed a complaint in July to the National Energy Board (NEB), TransCanada is abusing its market power.

The company cancelled previously accepted requests of additional capacity ahead of its Energy East project and is offering new long-term supply contracts at tolls that are many times higher than the rates already approved by the NEB.

Whether TransCanada is within its rights will be left to the NEB to decide.

Until a decision is rendered, politics will prevail.

Gaz Métro has the ear of the Parti Québécois government and has already convened a high-level meeting with Premier Pauline Marois's cabinet in June to alert them to the problem, one industry source said.

At that time, company officials made it clear that approving the pipeline could threaten the province's industrial development.

TransCanada has also had meetings with Ms. Marois's cabinet, but only to discuss the environmental approval process, according to the company's spokesperson, Philippe Cannon.

The NEB gets to study the project, but Quebec will assess the environmental impact of the pipeline on provincial territory.

TransCanada presumably wants things to move quickly.

But if it hopes for a rapid approval of its Energy East project, bullying Gaz Métro and its fellow Ontario gas distributors may not be the best way to go.

In fact, it may only drag Quebec's environmental study into Keystone XL-style delays, as no government in its right mind would shoot its own economy in the foot.

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About the Author
Chief Quebec correspondent

Sophie Cousineau is The Globe and Mail’s chief Quebec correspondent. She has been working as a journalist for more than 20 years, and was La Presse’s business columnist prior to joining the Globe in 2012. Ms. Cousineau earned a master’s degree in journalism from the University of Illinois and a bachelor’s degree in economics and political science from McGill University. More

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