Is Nova Scotia’s gas industry about to go up in smoke?

Posted on March 22, 2021 | Atlantic Business Magazine | 0 Comments

Once upon a time, Nova Scotia was home to an impressive pair of firsts in Canadian offshore oil and natural gas production.

The country’s first offshore oil project, Cohasset Panuke, was about 250 km southeast of Halifax on the Scotian Shelf. It produced 44.5 million barrels of oil between 1992-99. Canada’s first offshore natural gas project, Sable Offshore Energy Project, encompassed seven production platforms spread over 200 square kilometres near Sable Island. It operated from 1999-2018 and produced 2.1 trillion cubic feet of natural gas. A third project, Deep Panuke, ran from 2013-18 and produced 147.2 billion cubic feet of natural gas. Since 1999, royalties from Nova Scotia’s offshore projects have totalled $2 billion.

The common theme through all of those stories? They’re all in the past. Decommissioning of Sable and Deep Panuke began in 2018 and there are no projects set to replace them.

The 1,101-kilometre Maritimes and Northeast Pipeline was built more than two decades ago to take natural gas from offshore Nova Scotia to markets in Atlantic Canada and the northeastern United States. With production having dried up, the pipeline is no longer doing what it originally set out to do.

Still, “Nova Scotia’s offshore is moribund,” says Larry Hughes, a Dalhousie University professor with an interest in the transition to a low-emissions future. “There is always this ‘hope springs eternal’ that something will be found.”

The latest hopes rest with BP Canada. In mid-January, the Canada-Nova Scotia Offshore Petroleum Board announced the company forfeited a $2 million drilling deposit and paid an additional $3 million to extend its drilling licence, which now expires Jan. 14, 2022. “That’s great,” said Nova Scotia Energy Minister Derek Mombourquette. “They want to continue to look at their opportunities in the offshore [and] we welcome it.”

As part of Nova Scotia’s offshore growth strategy, Mombourquette says the province is focusing on geosciences, providing resource companies with the most accurate and up-to-date information as they ponder investing in the offshore.

The onshore plot twist
Samir Kayande, a Calgary-based independent energy analyst, says the economics of offshore natural gas projects became tougher because of the Marcellus shale reserves in the eastern United States. “It was this prolific resource that was so massive in scale that it collapsed gas prices for a decade,” he said.

Kayande says if natural gas production resumes in Nova Scotia, there has to be a bigger appetite for natural gas. That could happen if electricity generation moves from sources such as coal and oil to a cleaner burning fuel like natural gas. However, he believes the increased use of renewables in power electricity generation will likely eclipse the natural gas.

Bottom line? “The forces that would increase natural gas demand are probably going to lose out to the forces that want to reduce natural gas demand,” said Kayande. “If that holds, then the offshore resources will be stranded forever. It will never make sense to go after them.”
With little activity in offshore Nova Scotia, hope has shifted onshore, in the form of three proposed liquefied natural gas (LNG) terminals—AC LNG, Bear Head and Goldboro—and even a natural gas storage project (Alton Gas).

According to Kayande, it’s unlikely all three LNG terminal projects will go ahead. “There’s always way more LNG projects that are proposed than actually built,” he said. Kayande said firms need to line up long-term supply and demand contracts, which they will then use to get funding in order to begin construction. Speaking generally, Kayande said LNG projects are often announced before they have fulfilled these steps.

Cast of characters
India-based H-Energy has plans for an LNG plant and export terminal in Melford, Guysborough County, but it’s unclear where things stand with the project. There has been little news in recent years and the company didn’t respond to interview requests. A 2014 news release from the Nova Scotia government that noted the project could become operational by 2020 clearly didn’t come true.

Bear Head is a planned LNG export terminal located on the Strait of Canso in Point Tupper, Cape Breton. On its website, the company behind the project says it has obtained all federal, provincial and local regulatory approvals. However, the project was dealt a major blow last year. “Our Australian-based company and Bear Head parent company, LNG Limited, succumbed to the triple hit of COVID, low energy prices and a glut of LNG globally and was placed into administration by the company board of directors at the end of April this past year,” John Baguley, Bear Head LNG’s former chief operating officer, wrote in an email to Atlantic Business Magazine. The project was put up for sale last year.

The two remaining projects—Goldboro and Alton Gas—appear closer to fruition than the preceding two, but several challenges remain.

The future of Pieridae Energy’s Goldboro LNG project will become much clearer June 30. That’s when the company will make a final decision on the project that would bring natural gas from its western Canadian operations to Goldboro, Guysborough County, on the North American pipeline network, the final leg of which will be the Maritimes and Northeast Pipeline. The natural gas would then be stored and shipped to Europe.

James Millar, Pieridae’s director of external relations, said there should be excess gas that could be used in Nova Scotia. He said the company has a 20-year contract in place—and a 10-year option to renew—to supply natural gas to Uniper, a German energy company. He said the project would enable Uniper to decrease its reliance on importing natural gas from Russia.
According to Millar, upgraded compressors will be needed in some places to push more gas through the North American network, as well as “looping”—additional pipelines that run parallel to existing ones.

Kayande, the energy analyst, said constructing new pipelines will be no easy feat and could take decades to accomplish. “What I see as the biggest risk around the project is what the supply chain looks like as far as pipelines go,” he said.

Funding remains one of the biggest hurdles for the project. While Millar said “we have approval of eligibility in principle of U.S. $4.5 billion” from a German government loan program known as UFK, the company is also hoping to get assistance from Canada’s federal government, such as a loan guarantee, grant or repayable loan. “As our CEO has said, we’re looking for a hand-up, not a handout,” said Millar. “We need some help getting this over the finish line, but we feel if we’re able to, the benefits to Nova Scotians, to Atlantic Canadians and to Canadians as a whole are very large.”

In Nova Scotia alone, Millar said 4,500 to 5,000 workers would be needed for the 56-month construction period. An operational Goldboro would employ 200 people.

The climate cliffhanger
A 2014 environmental review by the province said the project would increase Nova Scotia’s greenhouse gas (GHG) emissions by 18 per cent above 2010 emissions levels. According to Millar, Goldboro has a roadmap to making the project net zero, which includes a carbon capture and sequestration project in Alberta.

As well, he said Uniper would use the natural gas to generate power as part of its efforts to wean itself off coal, which would have reduced emissions. “The emissions of natural gas are in the range of 50 to 65 per cent lower than coal,” he said. “We have the ability to contribute to lower global emissions through that, and then we take care of our own emissions in our backyard.”

Alton Gas, meanwhile, involves constructing two underground natural gas storage caverns near Stewiacke. The caverns would require pumping brine into the tidal Shubenacadie River estuary. A 10-kilometre pipeline would be constructed to connect with the Maritimes and Northeast Pipeline. The gas would be purchased in the summer when prices are lower, stored, then extracted in the winter when market prices are higher, wrote Alton Gas’s Lori MacLean in an email to Atlantic Business Magazine. Heritage Gas—a Nova Scotia-based natural gas distributor—estimates that this approach will result in savings of 15 to 20 per cent for its customers.

The $130-million Alton Gas project has been fraught with controversy, including a court-ordered injunction the company sought against demonstrators in 2019 and court action in 2020 that saw approval for the project appealed on alleged “inadequate Crown consultation.”

In March 2020, Nova Scotia Supreme Court Justice Frank C. Edwards ruled the province had not adequately consulted the Sipekne’katik First Nation, and noted the project would be “a significant industrial intrusion on an area the Band is claiming as its own … The studies and research to date indicate that the environmental consequences may be minimal.”

MacLean’s email explained that an internal 2020 review looked at ways to improve “environmental performance, respond to community and First Nations feedback and to align with updated regulatory requirements and evolving best practices. The changes being considered will further lower salinity concentration at the point of brine release into the estuary.”

In his decision, Edwards ordered the province to resume consultations with Sipekne’katik. However, he noted the start date for consultations will have to wait until the COVID-19 pandemic is declared over by the province’s chief medical officer of health.

Despite all the uncertainty, Energy Minister Mombourquette remains bullish about Nova Scotia’s gas prospects. “I see natural gas as a big part of our future … not only for the province, but I think as a global leader and distributor of natural gas to other countries,” he said. “There’s lots of activity happening.”

There’s a big difference between random paragraphs and a story that ends with happily ever after. Whether there will be a sequel to Nova Scotia’s gas play remains to be seen. Stay tuned. •

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