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Nova Scotia’s LNG hopes rest on securing gas supply

Earlier this month, an environmental panel gave conditional approval for the project.

Nathan VanderKlippe/The Globe and Mail

The crisis in Ukraine is adding fuel to Nova Scotia's plans to become a liquefied natural gas export hub, though questions persist about where the developers will get the natural gas to feed their ambitions.

Pieridae Energy Ltd. is pursuing an $8.5-billion (U.S.) plan to build a liquefied natural gas terminal at Goldboro, where Nova Scotia's offshore gas production is brought ashore. Pieridae has lined up Germany's E.ON AG, one of Europe's largest utilities, as a customer for five-million tonnes of gas a year, representing half of the planned 10-million-tonne capacity.

Pieridae president Alfred Sorensen accompanied Prime Minister Stephen Harper on a visit to Germany last month, and met with Chancellor Angela Merkel. Western leaders are looking for ways to reduce the near-total dependence of eastern Europe, and Ukraine specifically, on Russian gas supplies.

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The geopolitical crisis "has certainly raised the profile of the energy issues in Europe and has had a very positive impact on our project," Mr. Sorensen said in an interview Tuesday.

He said Pieridae has begun detailed engineering to establish a more accurate cost estimate and will then look to financing. If initial cost estimates are accurate, he expects to be able to compete with Russian gas, landing in Europe at $11 to $12 (U.S.) per million BTUs, beginning around 2020.

"I would say there is a high probability of success," he said.

Pieridae is one of several companies looking at LNG prospects in the Maritimes. India's H-Energy, a subsidiary of Hiranandani Group, is conducting a feasibility study for a second plant near Goldboro.

Two other companies are considering floating LNG warehouses, including Canaport LNG, a partnership between Spain's Repsol SA and New Brunswick's Irving Oil Ltd. Canaport was built as an LNG import terminal, but with the glut in North American supply, is now seriously underutilized.

Nova Scotia Energy Minister Andrew Younger is upbeat about the province's LNG prospects.

"I think we're at the point where these are real proposals," Mr. Younger said in an interview, noting Pieridae is particularly well-placed given the involvement of a German customer.

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"With the developments in Ukraine, that project has taken on more importance," the minister said.

Pieridae is clearly leading the pack in the race in Eastern Canada to supply Europe with natural gas from North America. It has cleared an environmental assessment for the Goldboro plant, and lined up E.ON as its major customer.

Mr. Sorensen is no newcomer to LNG development. He was co-founder of Galveston LNG, which pioneered the first export proposal in Kitimat, B.C., before selling it to Apache Corp. and EOG Resources.

But he faces a major hurdle in Nova Scotia: there isn't enough natural gas being produced in the Maritimes to support an LNG plant. And there are both pipeline and political challenges to the company's plan to import gas from the United States.

"The question remains: where is the gas going to come from?" said Michael Edwards, an energy consultant based in New Brunswick. Mr. Edwards testified recently at a parliamentary committee on Canada's ability to deliver energy to Europe to offset Russian dominance.

He noted that Nova Scotia's offshore fields – Sable Island and Deep Panuke – will be in sharp decline by the time an LNG project would be completed, while shale gas development in nearby New Brunswick remains uncertain.

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"Until a firm gas supply sufficient to justify a new facility is secured, LNG export from the Maritimes is conjecture," Mr. Edwards said.

Pieridae is hoping to access gas from the U.S.'s giant Marcellus shale gas field, which straddles Pennsylvania, West Virginia, Ohio and New York, and has massive untapped productive capacity.

However it faces severe pipeline constraints.

Spectra Energy Corp. has a plan to ship up to 600-million cubic feet a day of gas to New England and Canada's Maritimes, but it's not clear how much of that gas would actually be available for Nova Scotia.

Spectra recently completed an open season in which it solicited customers for the Atlantic Bridge project. The project would include reversing the underutilized Maritime & Northeast Pipeline, which moves gas from Nova Scotia's offshore to U.S. markets.

Mr. Sorensen said Pieridae will source half of its gas supply from the U.S., likely through the Atlantic Bridge pipeline. The company is also looking at resources in Nova Scotia's offshore – where Royal Dutch Shell PLC and BP PLC are planning new exploration efforts – and onshore New Brunswick, where companies are looking to develop shale gas reserves.

But there is another potential hurdle. Americans are currently engaged in a vigorous debate about the pace and scale of future gas exports, with some consumer groups warning that too much offshore business could drive up prices at home. The U.S Department of Energy must approve exports to non-NAFTA countries. Mr. Sorensen said Pieridae wouldn't need U.S. approval for exports.

Mr. Edwards isn't so sure.

"If U.S. unconventional gas were to be sent to Canada for further export, that could be problematic if seen by opponents of expanded gas exports as getting around U.S. policies." He said.

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