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RR RUEHGA RUEHMT RUEHQU RUEHVC
DE RUEHHA #0058/01 2241946
ZNR UUUUU ZZH
R 111946Z AUG 08
FM AMCONSUL HALIFAX
TO RUEHC/SECSTATE WASHDC 1320
RUEHOT/AMEMBASSY OTTAWA 0552
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHHA/AMCONSUL HALIFAX 1408

UNCLAS SECTION 01 OF 03 HALIFAX 000058 
 
SIPDIS 
 
STATE FOR WHA/CAN, EB/ESC/ISC 
USDOE FOR IA (DEUTSCH) 
 
E.O. 12958: N/A 
TAGS: EPET ENRG PGOV CA
SUBJECT: NEWS FROM ATLANTIC CANADA'S ENERGY SECTOR 
 
REF: HALIFAX 0045 
 
HALIFAX 00000058  001.2 OF 003 
 
 
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SUMMARY: 
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¶1.  With annual energy exports from Atlantic Canada to the 
United States now exceeding $14 billion, the region is poised to 
become an even more important energy supplier in the future. 
This cable reports on the latest developments across the region. 
 Overall, it has been a busy summer with good and bad news from 
Nova Scotia's offshore sector.  The province received its first 
cash from a new federal-provincial offshore agreement, but it 
also received money from penalties levied against three 
companies for not fulfilling their exploration commitments. 
While that was a stinging example of the slowdown in offshore 
exploration, there was some good news as two U.S. companies were 
the successful bidders for offshore parcels near Sable Island. 
There is also new optimism in Nova Scotia's onshore oil and gas 
sectors.  In LNG news, the Quoddy Bay LNG project has been 
delayed while Newfoundland-Labrador's Grassy Point LNG project 
has received provincial approval. 
 
¶2.  In other energy sectors, parties interested in developing 
the Churchill Falls project now know the guidelines that will be 
used to conduct the environmental assessment of the project. 
Work on New Brunswick's Point Lepreau nuclear power plant 
refurbishment project is on schedule and the province is seeing 
some new export possibilities with the proposed expansion of the 
Maine power grid. At the same time, New Brunswick officials are 
pondering the merits of turning to the private sector to develop 
new power generation projects rather than involving its 
financially-strapped utility.  Nova Scotia's utility, 
investor-owned Nova Scotia Power Inc., has a new CEO, who takes 
over the helm at a time when there is new emphasis in the 
province on developing alternative power sources.  END SUMMARY 
 
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Good and Bad News from Nova Scotia's Offshore Sector 
--------------------------------------------- ------- 
 
¶3.  The government of Nova Scotia released a budget update on 
August 5 to include new money from its offshore sector.  The 
province just received $234.4 million from the federal 
government as a result of an agreement both levels of government 
signed on June 13 that ended a decades-long dispute over 
offshore payments.  This issue began in 1986 when Nova Scotia 
gave up its right to any provincial (Crown) share of offshore 
projects on the assurance that the federal government would 
compensate the province for doing so.  The compensation plan 
never materialized, and after years of political wrangling, in 
January 2008, both levels of government agreed to appoint a 
joint panel to settle the issue.  The panel eventually worked 
out an agreement that will give the province $870 million - 
$234.4 million upfront, with the rest to be paid out over 15 
years.  Furthermore, the funds will be excluded from any 
equalization payments the province will receive from Ottawa, a 
contentious factor in previous attempts to resolve the issue. 
 
¶4.  Nova Scotia also got another $107 million in extra cash from 
its offshore, although not the way provincial politicians and 
industry stakeholders had hoped.  On July 28 ExxonMobil Canada, 
Marathon Canada and Imperial all let their exploration licenses 
expire which saw them pay the province $107 million in penalties 
for not having fulfilled their drilling commitments.  That 
leaves just three companies holding exploration licenses but 
none are actively engaged in exploration work:  Canadian 
Superior, BepCo Canada and EnCana.  BP Canada and Chevron also 
hold acreage but it is on the Canadian side of Georges Bank in 
the Gulf of Maine, an area under a federal-provincial 
moratorium.  There was some good news on July 10, however, when 
two U.S. companies, partners Ammonite Corporation and Catheart 
Energy, were the successful bidders for two offshore exploration 
parcels near Sable Island.  Under the terms of their bid, the 
companies are committed to spending $103 million and $114 
million respectively in the search for hydrocarbons.  Ammonite 
is a small, private petroleum exploration company headquartered 
Connecticut, while partner Catheart Energy is based in Texas. 
 
--------------------------------------------- ----- 
Onshore oil and gas:  New Optimism for Nova Scotia 
--------------------------------------------- ----- 
 
¶5.  While Nova Scotia's offshore exploration scene has slowed, 
there is increased interest in the potential of the province's 
onshore oil and gas reserves.  Unlike in neighboring New 
Brunswick, there has never been a commercial onshore discovery 
in Nova Scotia.  Now three Calgary-based firms are hoping to 
change that: Triangle Petroleum Corp., Stealth Ventures and the 
 
HALIFAX 00000058  002.2 OF 003 
 
 
newest player, Forent Energy. Triangle announced in June that it 
plans to spend $35 million to drill up to six wells in its 
search for shale gas; Stealth Ventures is exploring the 
potential of developing an old coal mine that contains an 
estimated 30 billion cubic meters of coal-bed methane gas; and, 
on July 16, Forent received approval from the provincial 
government for an exploration program for eastern Nova Scotia. 
 
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LNG News: Quoddy Project Delayed/NL Project Clears a Hurdle 
--------------------------------------------- -------------- 
 
¶6.  The members of a New Brunswick group fighting the 
construction of three proposed LNG terminals in Maine are 
encouraged by the news that one of the companies is delaying its 
project.  Quoddy Bay LNG announced on July 16 that it would 
delay upcoming hearings by the State of Maine because it has not 
finalized gas supplies.  A spokesperson said the company cannot 
determine the precise chemical composition of the gas or what 
processing equipment would be required until it can get a 
supplier. Inflation in construction costs was another factor in 
the decision.  The company said it will use the time to review 
its development plan which may include co-locating its project 
with the other proposals:  Downeast LNG and Calais LNG.  In 
other LNG news, on July 7 the Newfoundland-Labrador provincial 
government approved the environmental assessment plan for the 
proposed LNG terminal in Grassy Point Newfoundland-Labrador. 
The proponent, Newfoundland LNG, is still waiting for the 
federal environmental assessment to be finished. 
 
--------------------------------------------- - 
Update on Lower Churchill and Lepreau Projects 
--------------------------------------------- - 
 
¶7.  On July 15, the Canadian Environmental Assessment Agency and 
the Newfoundland-Labrador Dept. of the Environment issued the 
final guidelines for the preparation of the Environmental Impact 
Statement for the Lower Churchill hydro project.  The guidelines 
will provide direction to the eventual proponent of the project 
and will identify the information that will be required in the 
statement of the anticipated effects of the project on the 
environment.  In other energy project news, New Brunswick Power 
officials have said that the $1.4 billion Lepreau nuclear power 
plant refurbishment project is on schedule.  The fuel and heavy 
water have been removed from the plant and the project has now 
moved to the major work - refurbishment of the reactor itself. 
 
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Future Electricity Exports from New Brunswick 
--------------------------------------------- 
 
¶8.  New Brunswick is seeing the possibility of new U.S. export 
opportunities with the news that two private Maine utility 
companies want to upgrade their power grid.  Central Maine Power 
and the Maine Public Service Company announced on July 3 they 
are proposing to invest $1.9 billion in a project which would 
connect northern Maine to the rest of the State's power grid for 
the first time.  Should the project go ahead, the two companies 
would also look at making a connection to neighboring New 
Brunswick.  If that goes ahead, it would give New Brunswick some 
new capacity to expand its exports to New England. 
 
¶9.  In planning for future export sales, New Brunswick 
government officials have said the province will soon have to 
decide on just what role its provincially owned power utility, 
New Brunswick Power, will play in generating more electricity 
for export.  There is concern over the ability of NB Power to 
take on new projects given its current fiscal status.  In July 
the New Brunswick cabinet approved more than $600 million in 
loans to the utility:  $200 million towards the Lepreau 
refurbishment project, another $230 million to pay for 
replacement fuel while Lepreau is offline and another $190 
million to refinance the utility's debt which now stands at $3.4 
billion.  The alternative to having NB Power build new 
generation capacity would be for the province to invite the 
private sector to get involved.  Provincial officials point to 
the fact that there is already private interest in a possible 
second reactor at Point Lepreau and in developing new wind 
projects. 
 
-------------------------------- 
News from Nova Scotia Power Inc. 
-------------------------------- 
 
¶10.  The former President and CEO of Bangor Hydro, Rob Bennett, 
is now the new top executive at Nova Scotia Power Inc. (NSPI). 
Both Bangor Hydro and NSPI are owned by Emera, a Nova Scotia 
energy company.  Bennett, a long-time NSPI executive and Nova 
 
HALIFAX 00000058  003.2 OF 003 
 
 
Scotia native, went to Bangor Hydro in 2002 to oversee Emera's 
takeover of the utility.  Also NSPI announced on August 1 that 
it plans to use more biomass, including wood waste, to provide 
electricity to power homes in the province.  NSPI said it will 
seek proposals from various sectors and independent power 
producers for renewable energy projects fueled by biomass. 
Since 2003, NSPI has signed agreements with independent power 
producers for more than 300 megawatts of electricity from 
renewable sources.  Most of the agreements are for energy 
generated by wind, but also include landfill gas and biomass. 
 
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COMMENT: 
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¶11.  Atlantic Canada clearly has great potential to be a secure, 
long-term energy supplier for the United States--especially for 
New England.  U.S. Energy Under Secretary Albright underscored 
this theme during his June visit to Saint John, New Brunswick, 
when he described the province as a very valuable energy partner 
with the New England states.  Newfoundland-Labrador and Nova 
Scotia are similarly poised to be our strong energy partners. 
The combined total of annual energy exports to the U.S. from 
Atlantic Canada already exceeds $14 billion, with each Province 
focusing on different energy exports:  electricity from New 
Brunswick, oil from Newfoundland-Labrador, and natural gas from 
Nova Scotia.  There are prospects for future growth in several 
areas (reftel), but much will depend on how the demand for 
energy in the U.S. northeast shapes up in the coming months and 
on overall developments in global energy markets.  END COMMENT 
FOSTER