Will a huge Irving Oil pipeline discount trigger natural gas price shock in Nova Scotia?
'This could impact how much natural gas we burn in the future,' says Nova Scotia Power
Some of the biggest promoters of natural gas in Nova Scotia are sounding the alarm about a looming price shock expected in the next two years. And they're pinning the blame on a $176-million discount being offered to Atlantic Canada's biggest energy company, Irving Oil Ltd.
Nova Scotia's natural gas distributor Heritage Gas, Nova Scotia Power (NSP) and the Province of Nova Scotia have filed warnings with the National Energy Board (NEB), which is considering an application by the Maritimes and Northeast pipeline (M&NP) to slash the tolls it charges to deliver gas to Saint John-based Irving Oil.
Starting in 2019, Irving is being offered a 13-year "load retention rate" that would save it $176 million over the term of the agreement, inked in September 2016.
The discount is designed to keep Irving — which uses 65,000 mmbtu (million British thermal units) per day — from switching to a rival pipeline in New Brunswick, owned by Halifax-based Emera.
"If this were to occur, what it does is it forces us to re-look at this as a fuel source," said NSP president Karen Hutt.
On average, NSP burns about 15,000 mmbtu of natural gas per day to generate electricity.
"This could impact how much natural gas we burn in the future. If we can find an alternative that provides better or lower costs for customers, that is what we are going to pursue," Hutt told CBC News.
Everybody else pays more
Opponents say the Irving discount will have to be made up by other customers through higher tolls.
NSP estimated tolls could increase by 30 per cent, costing it up to $6 million more per year.
Ironically, the discount was triggered when another Emera subsidiary — Emera New Brunswick — tried to poach Irving as a customer for its 145-kilometre Brunswick Pipeline, which runs from Saint John to St. Stephen, N.B.
This could impact how much natural gas we burn in the future.- NSP president Karen Hutt
It was built in 2009 to connect the Canaport liquefied natural gas terminal to the M&NP into New England.
Irving is a partner in the LNG terminal with the Spanish energy company Repsol.
But Emera said it's up to its affiliates to look out for themselves wherever they operate.
"Each affiliate has a commitment and responsibility to independently advocate for their customers and business interests," the company said in a statement to CBC News.
From exporter to importer
Pipeline tolls were less important when customers had access to a ready supply of natural gas from Nova Scotia's two offshore projects: Exxon's Sable and Encana's Deep Panuke.
But those developments are rapidly winding down; by 2019, customers will increasingly rely on natural gas imported into the region from the United States.
The coming role reversal from exporter to importer has created a fork in the road in St. Stephen and an opportunity for Emera and its Brunswick pipeline.
Opponents in Nova Scotia say the Emera line was never seen — or approved by the NEB — as a competitor for the M&NP out of the region.
In its evidence, Nova Scotia is urging the NEB to reject the discount because it would "leave the rest of the market worse off for it."
Nova Scotians already pay the highest natural gas prices in the country, said Energy Minister Geoff MacLellan.
"Providing this particular incentive for one operation could have the impact of driving up rates here in Nova Scotia."
'Significant transfer of wealth'
Heritage Gas said it has spent $260 million hooking up residential and commercial customers in the province. It's asking the NEB to reject the Irving discount and to stop Irving from switching to Emera's Brunswick pipeline.
"Allowing Emera Brunswick pipeline to bypass and offload volumes from M&NP Canada would cause a transfer of significant wealth to Irving Oil and Repsol from electricity and gas end users (including residences, businesses, schools and hospitals) in the Maritimes. This could not possibly be viewed to be in the public interest," Heritage Gas argued.
M&NP, however, calls the Irving discount "just and reasonable."
This could not possibly be viewed to be in the public interest.- Heritage Gas statement to NEB
The overall pipeline system is better off by keeping — rather than losing — Irving, it said. And the discount is the only way to make that happen.
M&NP said it is responding to an expectation from the NEB that pipelines react to changing market conditions and pipeline competition is in the public interest.
"However, should the board determine in the circumstances of this case that the costs of the Emera Brunswick pipeline competitive threat outweigh the benefits from a public interest standpoint, M&NP would request that the board make this clear in its decision, and also indicate whether such a finding would apply to similarly situated M&NP customers, in order to allow the marketplace ― pipelines and customers alike ― to plan accordingly."
In its arguments to the NEB, Irving said the discount is a straightforward business transaction, and there is no reason for it not to move to Emera as the next best economic alternative for its long-term transmission needs.
Irving did not respond to CBC's request for comment.