Wednesday, July 31, 2002
The Chronicle Herald
Moncton Times Transcript

N.S. and N.B.: stop squabbling, think big

By Brian Lee Crowley

AS THE National Energy Board hearings on natural gas exports wrap up in Fredericton, the future of a vibrant and expanding natural gas industry on the East Coast hangs in the balance. Because of the way that Nova Scotia and New Brunswick have handled this matter, one might be forgiven for thinking that the two provinces’ interests are diametrically opposed. Nothing could be more wrong. We are just having difficulty getting our Maritime heads around what natural gas’s real benefits are. New Brunswick launched its application before the NEB from fear that those benefits would bypass the northern part of the province. That’s a legitimate fear, but the means they chose to deal with it were wrongheaded, however understandable they may have been.
The government in Fredericton has decided that the main benefit of the presence of natural gas is the ability to consume it. Logically, then, they decided that by making it much more difficult than before to export the gas to the U.S., the companies would be forced to bring their gas into the hitherto uneconomic markets in the north of the province.

But much of this policy is based on the assumption that consumers there are panting for natural gas. One way of testing this assumption is to ask what has happened in the south of the province, where roughly half the population can get gas simply by picking up the phone.

Embarrassingly for the government, the result has been not a stampede of consumers signing up, but a molasses-like trickle. A few hundred have signed up in the two years since gas became available.

One of the main reasons is that gas is not cheap. On the CBC the other day, a gentleman from northern New Brunswick said he wanted the gas because his competitors in the potato-processing industry out West had gas, and that put him at a disadvantage. He had to burn fuel oil, and that meant storage tanks, expensive larger buildings and equipment.

He implied that when the gas came, he could just dump all that. But, of course, he can’t. He has invested the money already in his buildings and tanks and equipment. If he just junks them, he throws away the money he’s already invested in them. The only way he could afford to do that would be if natural gas were hugely cheaper. But it’s not, and he’d have to buy new gas-burning equipment as well as absorbing the cost of hooking onto the local distribution system.

For straightforward business reasons, he’d have to hang on to his old equipment until he’d got the full benefit out of it, just as homeowners want to run down their investment in oil furnaces or electric baseboards before switching. Even then, the decision to switch will depend on the price spread between other fuels and gas. And the availability of gas will itself help to keep the price of those other fuels low, because they don’t want to lose customers to gas. As consumers and distributors in southern New Brunswick have discovered, natural gas is no panacea, and developing a local market will take many slow and painful years.

On the other hand, having the ability to sell gas to the U.S. market is a huge advantage for major gas buyers. Companies in New Brunswick that signed up for a piece of the existing Sable offshore gas are themselves often not ready to burn it, because they have not yet written off their old equipment either, and gas is often not cheaper than alternative fuels. Selling the short-term surplus to American consumers is thus a boon to New Brunswick industries.

But bigger than the benefits of consuming gas, or selling it to U.S. consumers, is the benefit that comes from expanding the supply of offshore gas.

By some estimates, the offshore industry has spent less than $2 billion in exploration development and infrastructure construction to date. But if we get a few breaks and the potential reserves offshore turn out to be real, the spending can reach as much as $50 billion.

That’s economic activity too large to be contained by just one province in our small region; it will have powerful spill-over effects in New Brunswick and P.E.I., as well as in northern New England and eastern Quebec. But it is precisely this impressive potential growth that is threatened if the oil and gas industry becomes convinced that it will not have full access to the U.S. market for the gas it brings ashore.

A better strategy for both New Brunswick and Nova Scotia, then, is to stop obsessing over gas access. Instead, they should sit down and look at how they can move in concert on energy policy to the region’s advantage, including in electricity and gas. The potential prize is too great for us to waste our time squabbling over the small stuff.

Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think tank in Halifax. E-mail: bcrowley@herald.ns.ca