Wednesday, May 8, 2002
The Chronicle Herald, The Moncton Times Transcript

New Brunswick myopic on energy regulation

By Brian Lee Crowley

NEW BRUNSWICK is risking the future of the offshore oil and gas industry in the Maritimes and damaging the economic prospects of some of its own largest businesses. In return, it will get only a tiny short-term economic benefit. The province would be far wiser to clean up its own energy regulation mess, providing enduring benefits for New Brunswickers, without damaging the offshore’s future.

New Brunswick has asked the National Energy Board (NEB), a federal regulatory body, to hold hearings on whether to continue to allow offshore natural gas to be exported on short-term contracts without an onerous hearing process at which Canadian complainants might argue that they’d like to take that gas, if you please, and at a price set by bureaucrats rather than markets. Apparently, larceny passes for economic development policy in Fredericton.

If the NEB grants New Brunswick’s request, the effect would be to create a brand new National Energy Policy in natural gas. The NEP, a brainchild of the last Trudeau government, envisioned a “made-in-Canada” price for petroleum products, a closed energy market, and big government interference in the industry.

The result was disastrous. Overnight, Canada became a hugely riskier place for the industry, where carefully planned investments of billions of dollars could be upset overnight by a federal government bent on bullying producers into accepting less than market price. Investment and jobs evaporated.

One of the very first things the Mulroney government did was to abolish the hated NEP, and to work to remove politics from energy decision-making. The goal was to allow energy supply and demand to find its own balance.

Throughout North America, natural gas distribution was also being deregulated, with huge benefits for consumers. Prices fell, supplies increased, exploration grew and the continental pipeline infrastructure was completed that allowed gas found anywhere to be sold everywhere across the continent, allowing everybody to benefit from new supplies, technology and investment.

New Brunswick would turn back the clock on much of that progress. Billions have been spent in the offshore in exploration, development, processing and pipeline construction. That money was invested because there were rules that gave the industry some certainty about political conditions as it worked to recover its investment over decades in a marketplace where the price for natural gas can swing dizzyingly.

Now that investment has been made, New Brunswick’s saying, let’s change the rules. Let’s make it a lot harder than we promised to export that gas to consumers in New England and beyond. The short-term impact would be to create a lot of what’s known as “shut-in gas.” If regulatory barriers prevent the gas from reaching buyers in New England, the supply in New Brunswick is artificially driven up. With few gas consumers there, such a bubble would drive the price down, at least in the short term.

The New Brunswick government’s protectionism is being backed by companies that have long played the nationalist card to secure subsidies for an uneconomic pipeline from Fredericton to Quebec City. If politics wins over common sense, some gas producers may be forced to support such a line in a last-ditch attempt to find customers for their now-orphaned gas. Except for the subsidized pipeline companies and a few customers in remote regions, though, everyone suffers when uneconomic pipelines are built. They damage economically sound ones and raise rates to everyone.

A more short-sighted policy could hardly be imagined. The future of the offshore, and the spinoffs it generates around the Maritimes, depends not on gas already discovered, but on burgeoning exploration and development. Instead, New Brunswick is signalling to potential investors in the offshore to stay away or they will become hostage to the whims of politicians trying to curry favour with voters.

Worst of all, there is already a huge surplus of natural gas in New Brunswick. Short-term exports are desirable in part because New Brunswick companies are having trouble using gas they agreed to buy. Having the ability to sell that gas to energy-hungry U.S. consumers is a huge advantage for them. A mere handful of consumers have signed up for gas, a fraction of what had been projected.

Ironically, that low take-up is largely due to the New Brunswick government. New Brunswick’s regulations have larded extra costs on the main distributor and reduced flexibility by forcing it to deal with consumers through unnecessary marketers, rather than directly. The distributor is forced to export the gas it cannot sell locally, a problem New Brunswick is largely responsible for but wants others to pay to solve. And don’t even mention the debt-driven death spiral that awaits government-owned NB Power due to years of politicized decision-making around electricity.

New Brunswick has lots of work to do to get its own regulatory climate right for energy. In the meantime, the NEB’s current hands-off policy is the right one to build a long-term dynamic gas industry that will provide lots of spinoff benefits for the whole region.

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