VZCZCXRO2505
RR RUEHGA RUEHMT RUEHQU RUEHVC
DE RUEHHA #0025/01 1191947
ZNR UUUUU ZZH
R 291947Z APR 09
FM AMCONSUL HALIFAX
TO RUEHC/SECSTATE WASHDC 1387
RUEHOT/AMEMBASSY OTTAWA 0606
INFO RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUEHFR/AMEMBASSY PARIS 0002
RUEHHA/AMCONSUL HALIFAX 1478

UNCLAS SECTION 01 OF 03 HALIFAX 000025 
 
SIPDIS 
 
STATE FOR WHA/CAN 
USDOE FOR IA (DEUTSCH) 
 
E.O. 12958: N/A 
TAGS: ENRG EPET PGOV PBTS PREL FR CA
SUBJECT: ATLANTIC CANADA ENERGY UPDATE 
 
REF: HALIFAX 0012 AND PREVIOUS 
 
HALIFAX 00000025  001.2 OF 003 
 
 
-------- 
SUMMARY: 
-------- 
 
¶1. Canadian federal government plans to develop an Atlantic 
energy gateway to the United States ignited a political war of 
words with the province of New Brunswick, which was already 
working on a similar concept with the State of Maine.  The 
political wrangling, however, has had no effect on 
Newfoundland-Labrador's study into different power transmission 
options from its proposed Lower Churchill project. 
Newfoundland-Labrador (N-L) signed an historic agreement with 
Quebec to allow the N-L to sell power from its existing Upper 
Churchill Falls facility directly into the energy market for the 
first time.  In other energy developments, utility companies in 
Nova Scotia and Ontario have teamed up to buy a California power 
distribution company; the Canaport LNG partners are aiming to 
have their project up and running in time to compensate for a 
planned shutdown of the Sable gas project; 
Newfoundland-Labrador's Hebron project is finally a work in 
progress; StratoilHydro Canada made an exciting discovery in a 
new deepwater offshore area; there will be an inquiry into 
offshore transportation safety following a fatal helicopter 
crash off Newfoundland; and, Nova Scotia and 
Newfoundland-Labrador are upset by French plans to press for 
more of the seabed around their islands of St. Pierre and 
Miquelon.  END SUMMARY. 
 
--------------------------------------------- ------------ 
POLITICS AND ENERGY: WRANGLING OVER U.S. EXPORT POTENTIAL 
--------------------------------------------- ------------ 
 
¶2.  Canadian Prime Minister Steven Harper had to do some damage 
control in New Brunswick in early April when provincial premier 
Shawn Graham got into a public row over energy issues with Peter 
MacKay, the PM's key cabinet minister from Atlantic Canada. 
MacKay was in his home province of Nova Scotia on March 29 to 
unveil a C$4 million plan to study the feasibility of building 
an Atlantic energy gateway to provide increased energy exports 
to the United States.  The focus would be to develop the 
region's energy potential both as a means to spur economic 
development and to lower the region's carbon footprint through 
an emphasis on cleaner energy sources.  However, New Brunswick 
Premier Shawn Graham bristled at the idea, since he already 
considers his province to be the region's energy hub and the 
lynchpin for a cross-border energy corridor/gateway.  Graham 
accused the federal minister of trying to undercut his 
three-year plan to develop the hub and corridor vision, the most 
recent milestone of which was the agreement he signed in March 
with Governor Baldacci of Maine to study the feasibility of an 
energy corridor (ref). 
 
¶3.  Premier Graham's response and further comments by his energy 
minister that the other provinces could not expect to simply 
"ram their power" through New Brunswick prompted Minister MacKay 
and Graham's regional counterparts, Premiers Danny Williams of 
Newfoundland-Labrador and Rodney MacDonald of Nova Scotia, to 
voice their own opinions.  Each suggested that they could bypass 
New Brunswick in exporting their new energy supplies if the 
Graham government tried to thwart the energy flow through his 
province.  It took the involvement of Prime Minister Harper to 
ease the tension between all parties.  Premier Graham appeared 
to accept the PM's assurances that this new federal plan would 
not adversely affect New Brunswick and in fact, as the PM 
explained, the intent would be to marry New Brunswick's long 
term energy plans with the new federal focus.  For now all seems 
quiet on the political front.  Interestingly, there are some in 
New Brunswick who like the federal involvement, seeing this 
small investment of seed money as possibly leading to more 
significant federal support down the road. 
 
--------------------------------------------- ------- 
The Lower Churchill Project and Transmission Options 
--------------------------------------------- ------- 
 
¶4. This political wrangling has had no apparent effect on 
ongoing regional energy cooperation.  The Government of 
Newfoundland-Labrador (GoN-L) is continuing its work in 
identifying possible transmission routes for the power from its 
proposed hydro development on the Lower Churchill River.  The 
choice of a transmission route to North American markets is a 
key factor in assessing the project's viability and the province 
is doing a thorough investigation into the several options.  One 
option is to transmit the power via a sub-sea power line to Nova 
Scotia and on to New Brunswick.  The GoN-L has commissioned the 
New Brunswick System Operator (NBSO), a subsidiary of the 
 
HALIFAX 00000025  002.2 OF 003 
 
 
provincially-owned utility New Brunswick Power, to assess if the 
province's electrical grid can handle the extra power from Lower 
Churchill.  There is some debate as to how much increased 
capacity NBSO would need and whether NBSO might consider 
displacing existing users on the system.  The GoN-L has also 
commissioned Hydro Quebec (HQ) to do a similar study, since HQ 
offers a competitive geographic advantage over other proposals. 
A third option is for the power to land in Nova Scotia where 
Emera, the province's energy corporation, would come up with its 
own plan to ship the power directly into New England via another 
sub-sea cable. 
 
--------------------------------------------- ---------- 
Upper Churchill Project: Historic Agreement with Quebec 
--------------------------------------------- ---------- 
 
¶5.  Newfoundland-Labrador Premier Danny Williams announced on 
April 2 that for the first time, his province will be selling 
power directly into the North American electricity market from 
its existing Upper Churchill Falls hydro project in Labrador. 
Previously, all the power produced at the facility went to Hydro 
Quebec (HQ), which in turn sold the power to other 
jurisdictions.  In 1998, the GoN-L negotiated an agreement with 
HQ whereby N-L would have the right to recall 300 MW of the 
Churchill power for use in Labrador during peak periods. 
Customers in Labrador typically only use approximately 170 MW of 
the power, and the province has been returning the remainder to 
HQ for reselling.  The 1998 agreement expired on March 31 this 
year and the Williams government negotiated a new deal whereby 
it would sell the power itself in the North American energy 
market under HQ's Open Access Transmission Tariff system.  Since 
Newfoundland-Labrador has never been a direct seller of 
electricity, the government contracted with Nova Scotia's Emera 
to sell the power for N-L until the GoN-L can develop the 
expertise to conduct the sales on its own. 
 
--------------------------------------------- ------------- 
Utilities Partner to Buy California Electrical Distributor 
--------------------------------------------- ------------- 
 
¶6. Emera, the parent company of Nova Scotia Power and Bangor 
(Maine) Hydro, announced on April 23 that it has entered into a 
partnership agreement with Algonquin Power Income Fund of 
Ontario (APIF) to invest in utility infrastructure and renewable 
generation facilities.  As a first step in their partnership, 
Emera and APIF have committed to acquiring the California-based 
electricity distribution and related generation assets of Sierra 
Pacific Power Company, which currently provides electric power 
to approximately 47,000 customers in the Lake Tahoe region. 
Under the terms of the agreement, Emera and Algonquin will 
jointly own and operate the utility through a newly formed 
entity, California Pacific Electric Company (Calpeco).  The 
transaction, which is costing the two partners US$116 million, 
is subject to approval by the California Public Utilities 
Commission. 
 
--------------------------------------------- --------- 
Canaport LNG Exports Expected to Offset Sable Shutdown 
--------------------------------------------- --------- 
 
¶7. Irving Oil and Spanish partner Repsol expect that Canaport, 
their new liquefied natural gas terminal in Saint John New 
Brunswick, will be ready to receive the first shipment of 
natural gas from Trinidad and Tobago in June.  At that point the 
partners can begin the terminal's cool-down and commissioning 
process.  Timing is a critical factor as the partners are hoping 
that their project is fully operational in time to offset the 
scheduled 20-day shutdown of the Sable Offshore Energy project 
in August.  The Sable project produces 400 million to 500 
million cubic feet of natural gas and 20,000 barrels of natural 
gas liquids per day.  Approximately 75 percent of Sable's daily 
output is exported to the United States. 
 
--------------------------------------------- -------- 
Hebron Update:  Looking for a 2012 Construction Start 
--------------------------------------------- -------- 
 
¶8. Hebron, the fourth oil project offshore 
Newfoundland-Labrador, is finally a work in progress.  In March, 
Exxon-Mobil, the lead company in the development consortium, 
filed documents with the joint federal-provincial regulator, the 
Canada-Newfoundland and Labrador Offshore Petroleum Board, to 
begin the environmental assessment of the project.  The partners 
have also set up an office in St. John's and have started 
holding information sessions with local contractors. 
Exxon-Mobil intends to start construction in 2012 and 
anticipates a production start-up date for some time in 2017. 
 
HALIFAX 00000025  003.2 OF 003 
 
 
 
--------------------------------------------- -- 
Excitement over Discovery in Flemish Pass Basin 
--------------------------------------------- -- 
 
¶9.  Norwegian-owned StatoilHydro Canada announced on April 8 
that it had made a significant discovery on its Mizzen prospect 
in the deep waters of the Flemish Pass Basin, approximately 310 
miles east northeast of St. John's, Newfoundland-Labrador. 
Husky Oil of Calgary also participated in the project with a 35 
percent interest.  The company will have to conduct further work 
to determine the size of the discovery and its commercial 
viability.  Nonetheless, news of the drilling results caused 
much excitement in Newfoundland-Labrador as this was the first 
promising find outside the Jeanne d'Arc basin where the Hibernia 
and other producing fields are located.  The drilling operation, 
conducted at a water depth of 3,600 feet and during the heart of 
the North Atlantic winter storm season, "was very challenging," 
according to company officials. 
 
--------------------------------------------- 
Regulator to Hold Inquiry on Helicopter Crash 
--------------------------------------------- 
 
¶10. The joint federal-provincial regulator, the 
Canada-Newfoundland and Labrador Offshore Petroleum Board, 
announced on April 16 that it will hold a public inquiry into 
safety issues associated with helicopter travel to and from the 
province's offshore oil and gas projects.  This follows the 
crash of a helicopter off Newfoundland on March 12 which killed 
17 people who were on their way to two offshore oil production 
facilities.  The Board expects it will release further details 
over the coming weeks. 
 
--------------------------------------------- --- 
Provinces Upset with France over Boundary Claims 
--------------------------------------------- --- 
 
¶11.  The provincial governments of Newfoundland-Labrador and 
Nova Scotia are upset over the French government's intention to 
lay claim to a larger swath of the seabed around the French 
islands of St. Pierre and Miquelon.  The islands lie just off 
the south coast of Newfoundland and France and Canada have had a 
long dispute over jurisdiction of the surrounding waters.  Both 
countries settled on a maritime boundary in 1992 but according 
to a post contact, the French have never been happy with their 
allotted territory.  Accordingly, he is not surprised that the 
French want to reopen the issue especially since the 6,000 
French inhabitants of the Islands want to exploit the rich 
hydrocarbon resources.  The Canadian government is promising to 
take what it called "all necessary steps to defend and protect" 
its rights, a move welcomed by the two provinces who are just as 
anxious as the St. Pierrais to develop the undersea resources. 
FOSTER