As local natural gas supplies dwindle, buyers and sellers in the Maritimes mull over their options
In the summer of 2015, Spindrift Brewery Co. out of Dartmouth, N.S. opened its doors to the world. The craft brewery’s suds are made in the city’s Burnside Industrial Park and its owners, Andy Armstrong and Andrew Bell, decided to use natural gas to power the brewing process.
Armstrong says they decided to use natural gas because a distribution line was near the brewery, the cost of gas was economical and the steam boiler used to heat water for brewing was more efficient using the cleanest burning fossil fuel. “Natural gas is integral to our business because the steam boiler feeds the brewing process and we need hot water and access to hot water constantly,” Armstrong says.
Armstrong is busy, and so it’s understandable that he doesn’t follow natural gas developments in the region closely. If he did, he might be more concerned about how economical it could be in the future.
Much of the province’s supply of natural gas comes from two fields off the coast of Nova Scotia—ExxonMobil’s Sable and Encana’s Deep Panuke. But production is rapidly declining at both fields and both ExxonMobil and Encana have started planning for their decommissioning. By 2021 it’s possible both will no longer be producing natural gas, taking a substantial amount of supply off the market for customers in Nova Scotia and New Brunswick. In January of 2017, the combined average production from the two fields was 205 million cubic feet per day.
To keep the region supplied and make up for the gap left behind by Sable and Deep Panuke, the natural gas will have to come from somewhere, and the gas could cost more to get here and that will ultimately be passed on to customers like Spindrift Brewery.
Talking on the phone from Dartmouth, Armstrong says he was “oblivious” to the fact Sable and Deep Panuke’s imminent demise could punch a very big hole in the Maritimes natural gas supply picture. He wonders what it could mean for his young business. “Heating and cooling comprise two of the biggest expenditures for the company,” he says. “If the price of natural gas rose because of this, we would be looking at other options.”
Unlike the majority of Canada, the Maritimes doesn’t have a long history of using natural gas to meet its energy needs. That changed in 1999 when the Sable field, located 225 kilometres off Nova Scotia’s east coast, first started producing natural gas. Production began at Deep Panuke in 2013. From 1999 to 2013, natural gas use increased in New Brunswick by more than 200 per cent and more than 300 per cent in Nova Scotia according to a 2015 report issued by the Atlantica Centre for Energy.
However, that report also says if natural gas has to be imported from farther away, it could lead to substantial increases in the cost of natural gas. Gas distributed through pipelines pays tolls; the more distance the gas travels to get from the point of production to the end user, the more toll that must be paid. Todd McDonald, president of Halifax-based Energy Atlantica, an energy trading company, says Atlantic Canada is currently paying two-to-six times more for natural gas than all other jurisdictions in North America.
McDonald says high prices for natural gas increase operating costs and impact competitiveness. “If you’re a business and energy costs make up one-third or half of your expenditures and you’re competing against companies in Alberta, Ontario and the U.S. where those costs are less, that’s not good,” he says.
The New Brunswick and Nova Scotia governments don’t seem keen to address the issue. While New Brunswick only has one small producing field, McCully (it produced an average of five million cubic feet per day during the first quarter of 2017), the province is thought to have sizeable onshore natural gas potential. Nova Scotia’s onshore potential is largely unknown. But both provinces have hydraulic fracturing bans in place. Because fracking would be needed to produce the onshore gas in both places, that onshore potential is stranded.
Nova Scotia’s Department of Energy turned down an interview request for this story. New Brunswick’s Department of Energy emailed a statement about what it has in place to soften the blow for natural gas users once Sable and Deep Panuke are no longer producing. In the statement, department spokesperson Shawn Berry says the province will continue to use the Maritimes & Northeast pipeline to access natural gas supplies from the U.S. and Western Canada. The Canaport LNG export facility in Saint John also can supply natural gas to users in the province.
As for lifting the fracking ban in New Brunswick, that does not seem to be in the cards. “The New Brunswick government set out five conditions for lifting a moratorium on hydraulic fracturing. Those conditions have not been met,” Berry wrote in the statement. “The moratorium is specific to hydraulic fracturing operations, and as such, exploration activities (including seismic imaging and well drilling) are still permitted to occur with the proper approvals and permits, as under normal circumstances.”
Companies in the distribution business say the situation isn’t as dire as some believe. Alton Natural Gas Storage LP is building an underground natural gas storage facility and associated pipelines in Stewiacke, Nova Scotia, about 60 kilometres from Halifax. The facility would have the capacity to store four billion cubic feet of natural gas in two salt caverns.
Alton spokesperson Lori MacLean says the plan is for the facility to be operating by 2020. There is no natural gas storage capacity currently available in the province, so gas is often bought at ‘spot’ prices. And if that gas is bought during periods of high demand, such as the winter, the price for it will be higher than it is if it’s bought during a time of the year when demand is low. “What the storage facility does is provide a cushion. You can buy natural gas when it’s at a lower price, typically in the summer, and store it,” MacLean says. “Then when demand increases and prices rise, you can draw from what is stored in the caverns. This decreases the price volatility.”
Heritage Gas Ltd., a Dartmouth-based company that provides natural gas distribution to 6,500 customers in the Maritimes, has a contract in place to use the Alton facility. Heritage Gas interim president John Hawkins doesn’t seem worried about natural gas prices rising steeply once Sable and Deep Panuke are shut in. “Heritage Gas started years ago to prepare for the reduction in production from offshore Nova Scotia,” Hawkins says
Those preparations include signing on as a customer for the Alton storage facility. He says that contract will give the company access to ‘inexpensive gas” to meet the majority of its winter requirements. It’s also signed a 15-year contract to source U.S. gas on Enbridge Inc.’s Atlantic Bridge pipeline. The pipeline will link the Algonquin pipeline in the northeast U.S. with the Maritimes & Northeast pipeline.
In large part due to fracking, shale and tight gas basins are being developed and the continent has more gas than it can use. That means it’s a buyer’s market for companies like Heritage Gas, and Hawkins says it goes to the market several times a year to buy the gas it needs. It’s found that gas sourced from Sable and Deep Panuke is often no cheaper than getting it from elsewhere. “In Western Canada, gas is less than $3 per gigajoule,” Hawkins says. “Even if you add pipeline tolls to that cost, Western Canada gas is competitive to what we source locally.”
Larry Hughes, a professor with Dalhousie University and a leading expert on alternative energy, says the handwringing over declining natural gas supplies from Sable and Deep Panuke and rising costs for the commodity could be much ado about nothing. With the federal government mandating the provinces put a price on carbon emissions, and Nova Scotia and New Brunswick developing their plans, there isn’t much incentive for those governments or businesses to increase their use of natural gas because they will be charged for the emissions.
“If you have to pay for your emissions, natural gas is still a source of emissions,” Hughes says. “So you go with an energy source that is non-emitting. There is no reason to encourage natural gas development here.”