By Wesley Loy

First of three parts

Halifax, Nova Scotia — The harbor of this Atlantic city has seen warships, slave ships and ships of commerce.

Now, increasingly, titanic drilling rigs are calling here, igniting Canada’s dreams of an economic boom fired by natural gas.

Other parts of the world are chasing the same dreams, including Alaska.
In many ways, Alaska and Nova Scotia are transcontinental kinsmen. Both fancy themselves as remote resource colonies, struggling for greater economic diversity and self-reliance.

Both see natural gas as the next big thing. And both are hoping for a pipeline megaproject to carry billions of dollars worth of gas to markets hungry for clean-burning fuel.

Nothing is assured. Just look at Alaska’s frustration. Drillers have discovered 35 trillion cubic feet of gas on the North Slope, a fabulous storehouse of energy. Yet for more than two decades, it has remained in the ground. Oil companies say they can’t justify the high cost of a long pipeline to carry it out.

In Nova Scotia, the main challenge is finding enough gas to fill its own big pipe. But already some gas is hissing in from offshore platforms. Geologists think much more remains to be discovered, and immense drill rigs are on site to find it.
If they’re successful, a major U.S. company stands ready to lay a 1,000-mile gas pipeline under the Atlantic Ocean from Nova Scotia south to New York.

It’s just one in a slew of gas megaprojects being contemplated around the globe, projects often involving the same companies that control the fate of Alaska’s gas.
For Nova Scotia, a fog-draped, lobster-shaped lobe dangling down by Maine, a gas boom could transform the province the way oil made over Alaska. Both places have roots in mining, timber, commercial fishing and federal largess.

“There will be prosperity in this province the likes of which has never been observed before,” Nova Scotia Premier John Hamm told a Chamber of Commerce crowd last summer.

Natural gas fever

Alaska and Nova Scotia are hardly the only competitors in the global race to bring often remote natural gas reserves to market.

The fact is, the world has no shortage of gas.

From Arctic Canada’s Mackenzie River delta to the deep-water Gulf of Mexico to the Middle Eastern emirate of Qatar, which practically floats on the stuff, everybody is chasing the billions to be made from selling a cleaner fuel coming more and more into favor to generate electricity, power industry and heat homes.

Getting Alaska gas to market, while momentous to Alaskans, wouldn’t set the energy world on fire, says Dale Nesbitt, a California-based energy economist. In fact, it couldn’t supply even 10 percent of the gas needed daily today in Canada and the United States.
It will take many sources, he says, to satisfy gas demand in the world’s growth markets.
Big projects are busting out all over.

Last year, BP and its partners in Indonesia’s Tangguh natural gas project signed a 25-year deal to supply liquefied natural gas to China.

Also last year, Exxon Mobil announced that a 900-mile subsea pipeline to carry gas from the Russian Far East’s Sakhalin Island to Tokyo is “both technically and commercially feasible.”

Peru plans to export gas from its rain forests to the United States with the help of two Texas-based companies, Hunt Oil Co. and Halliburton Co.

And several companies, including BP and Conoco Phillips, are testing revolutionary technology to cheaply convert gas to stable liquids. Such liquids could flow through existing oil pipelines, potentially freeing up giant, stranded stores of gas around the world, including Alaska gas.

The dominant idea currently for Alaska gas, however, is to pipe it across Alaska and Western Canada to the Midwest states. It would be a multibillion-dollar project requiring 3,500 miles of steel pipe.

For Nova Scotia, the target is the Northeast, a prime growth region. Having that market for a neighbor is the big reason for the province’s excitement about its offshore gas.
Nesbitt says projected growth in natural gas consumption bodes well for both Alaska and Nova Scotia. His own model suggests that in 10 to 15 years, even the distant North Slope gas will reach the market.

One major factor, he says, is depletion of the traditional North American natural gas basins, including the Gulf of Mexico and the Alberta basin in Western Canada. Supply hasn’t risen as fast as expected despite “really high” prices of $5 or more per 1,000 cubic feet. Through much of the late 1990s the price hovered between $2 and $3.

“The drilling success hasn’t been what we’d anticipate at the prices we’re seeing — in fact, alarmingly so,” Nesbitt says.

Tom Adams, an analyst with Energy Probe, a Toronto research firm, suspects all the talk of huge new North American gas projects might be just hot air.

“Energy megaprojects have a way of making the politicians all starry-eyed,” he says. “I’m a little bit of a wet blanket on this. Exploiting new gas reserves is not a gimme.”

The U.S. Department of Energy’s outlook to 2025, however, forecasts a “growing dependence on major new, large-volume natural gas supplies,” including North Slope gas and Canadian imports.

Great expectations

Out in Halifax Harbor last summer sat a colossal drill rig called the Eirik Raude, soon to be drilling for gas in thousands of feet of chill Atlantic water. Haligonians, as they’re called, practically threw a party when the rig arrived for fabrication work at a local dock.
Inside the Split Crow, a popular downtown pub, the party never stops. The band 1749 (named for the year Halifax was founded) plays rollicking Scotch-Irish folk tunes that everybody sings. And when a drunk hollers SOCIABLE! we all hoist pints of locally brewed Keith’s.

The really big gas discoveries have yet to come, but some Royal Bank of Canada workers clustered around a bar table sound a little like Alaskans when they suggest their government hasn’t wrung all it could from the emerging petroleum industry. Things like royalties, jobs and other benefits.

“The perception is we’ve sold ourselves short,” says Peter Denton, 36, a computer systems worker. Yet he concedes that some people have overblown expectations, that “our ship has come in and we’re gonna cash out on it.”

Few will cash out until Nova Scotia achieves its main goal: finding a lot more natural gas.
Geologists say plenty is out there.

A new government estimate says as much as 41 trillion cubic feet of gas and 5 billion barrels of oil could reside under waters 650 to 13,000 feet deep off Nova Scotia. Additional deposits are thought to lie in the shallower waters of the Scotian shelf.

“Offshore Nova Scotia is expected to be a significant gas-producing basin,” Calgary-based Ziff Energy Group declared in August.

A string of apparent dry holes have dampened spirits in recent months, but Scotian officials note that only about 200 wells have been drilled on the shelf over 30 to 40 years, compared with tens of thousands of holes sunk in the Gulf of Mexico.

“It is a vastly unexplored basin,” says Paul Taylor, executive director of policy for the Nova Scotia Department of Energy, an agency created less than a year ago.

This year brings a flurry of new activity, with eight to 10 wells planned. Companies holding exploratory acreage have pledged more than $1 billion in drilling work over the next few years, Taylor says.

Momentum builds

Impetus for the new drilling came from a venture called the Sable Offshore Energy Project, named after a wisp of sand called Sable Island about 185 miles out in the Atlantic.

The island is famous for its wild horses and shipwrecks. And now natural gas.

The project is a consortium led by Exxon Mobil. Three production platforms near the island gather gas and send it up a subsea pipeline to processing plants on the Scotian mainland. From there it’s piped to consumers as far away as Boston.
Sable began production on the last day of 1999 and is Canada’s first offshore natural gas development. It is expected to produce about 3.5 trillion cubic feet of gas over 25 years.

The Sable project proved Scotian gas could be developed and “led to a real land rush offshore,” Taylor says.

Now companies like Chevron Texaco, EnCana and Marathon are searching for bigger strikes.

“We think there’s substantial opportunity there,” says Alan Boras, spokesman for Calgary-based EnCana, which recently began drilling the McCovey oil prospect in the Beaufort Sea off Alaska.

EnCana this winter is using the Eirik Raude rig to drill an exploratory well near Sable Island, and by 2006 it hopes to begin producing 1 trillion cubic feet of gas from another offshore field called Deep Panuke.

As the oil companies hunt for big gas fields, the largest U.S. gas pipeline company, El Paso Corp., is seeking regulatory approval from both Canadian and U.S. officials for a 1,000-mile subsea pipe to beeline large quantities of gas to New York and New Jersey.
El Paso calls its proposed pipeline the Blue Atlantic Transmission System.

“It’s one of our premier pipeline projects under development, and the largest,” says El Paso spokesman Aaron Woods.

Stubbing toes

Brian Crowley is president of a Halifax think tank called the Atlantic Institute for Market Studies. He’s also owner of the Queen of Cups, a darling tea house in Dartmouth across the harbor from Halifax.

Nova Scotians, like Alaskans, have seen their share of bold visions and grand ideas, Crowley says. The Blue Atlantic pipeline might very well be built. On the other hand, he says, “when people show up and say ‘Have we got a deal for you,’ we say, ‘Oh, yeah.’ ”

The key challenge for Nova Scotia is creating something lasting from whatever natural gas is found, he says. That means parlaying it perhaps into an oil-field services industry that can compete for work around the globe.

As in Alaska, however, parochial demands threaten to gum up the works, Crowley says. For instance, some Nova Scotians demand that cheap gas be reserved for local homeowners and industries before any is exported, preferably at high prices.
If government makes rules to appease those voices, it could repel an industry taking enormous risks, Crowley says.

When a single offshore well can cost $50 million, “you’d better find a bleedin’ big lot of gas when you drill,” he says.

With about 940,000 people, Nova Scotia (Latin for New Scotland) holds the status of a poor province in a rich country, though it hardly looks needy.

The capital, Halifax, is a clean city of prim Victorian homes, five colleges and universities, and a tourist-packed waterfront. In the picturesque villages down the coast, lobstermen fearful of petroleum pipelines passing through their fishing grounds say they’ve never enjoyed better times.

Like Alaska, the province is heavily dependent on federal subsidies.

Nova Scotia craves homegrown industry and has stubbed its toe a few times trying to find it. Whereas Alaskans have mounted failed attempts at agriculture and seafood processing, Nova Scotians have had misadventures with heavy water plants and supercomputer manufacturing.

For now, natural gas accounts for less than 5 percent of Nova Scotia’s gross domestic product. The question is whether the province can step up as one of the world’s major natural gas players, the way Alaska and many others want to.

Taylor, the Scotian energy official, says: “Depending on the success with the drill bit, there is the potential for transforming our economy.”

Reporter Wesley Loy can be reached at wloy@adn.com or 907-257-4590.