The Oil Drum: Canada

I definitely agree that Canada needs a comprehensive energy plan, but I do cling to the (probably naive) belief that Canada will ignore the proportionality clause if things really get tight. The way the US blatantly scoffs at their obligations under trade agreements I think we have earned a smidgen of leeway to keep from 'freezing in the dark' (of course a west-east pipeline network is a necessity). Also, the probability of another Albertan hissy-fit seems remote because energy prices will remain high this time and I think that it's well recognized that the 'Bloc Albertois' experiment didn't pan out particularly well.

For now though it seems the east is pinning it's fortunes to this LNG terminal in Quebec City that is rife with problems.

I quite liked Linda McQuaig's article from The Star from a year or so ago calling Canada an 'energy pussycat.'

http://www.thestar.com/article/238985

I was still quite young when the NAFTA agreement was signed (1994?) and thus obviously laregly uninterested in it at the time.

I wonder if anyone knows the behind-the-scenes thinking of that proportionality clause... I am assuming it was a US backed part of the agreement so that we could not cut back supplies once we started exporting them and once America had become reliant on them, is this correct?

Anyone have any extra info on this proportionality clause?

The NAFTA Proportionality clause Article 605 is often misunderstood. It comes into effect only if the Federal Government of Canada (or of the US) undertakes to implement measures to limit exports. As long as the governments refrain from intervening in the North American energy market, there is no proportionality requirement. Decisions to export oil or gas from Canada to the US are entirely made by producers and suppliers, subject to regulatory approval by National Energy Board and the Alberta Energy Resources and Conservation Board, primarily for environmental and safety reasons.

The political effect of Article 605 is to severely limit the power of the Federal Government to intervene in the primarily Albertan energy industry, something Albertans wanted to prevent another National Energy Program. My guess is that the FTA negotiations were based on trading US access to Canadian energy for Ontario and Quebec access to US markets for manufactured goods. In effect, Eastern Canada gave up energy security for (supposedly) free access to US markets.

Interestingly, it appears that the Government of Alberta has recently taken steps to remove what may people believe is a requirement that the ERCB (successor to the EUB) hold in reserve 15 years supply of natural gas for Albertans before permitting exports. The 15 year rules appears to never have been written in law, but to be only an interpretation of the clause in the Gas Resources Preservation act (amended 2008) which requires that

Limitations on granting of permit
8 The Board shall not grant a permit unless in its opinion it is in
the public interest of Alberta to do so having regard to
(a) the present and future needs of persons in Alberta,
(b) the established reserves and the trends in growth and
discovery of reserves of gas or propane in Alberta, and
(c) any other matters considered relevant by the Board.
1984 cG-3.1 s5;1986 c17 s3

The EUB interpreted the clause to mean that "core consumers" needs should be met for 15 years before gas could be considered surplus and available for export from Alberta (to the rest of Canada or the US). The term "core consumer" was referenced in the Gas Resources Preservation Act and defined in Gas Utilities Core Market Regulation (AB 44/95):

Classes of consumers
3 Consumers are classified as follows for the purposes of this
Regulation:

(a) Class 1: Industrial Consumers, consisting of consumers who use
or consume gas at a location primarily

(i) as a raw material, or

(ii) as a fuel, whether for space heating, water heating
or otherwise,

in an industrial or manufacturing operation;

(b) Class 2: Alternate Fuel Capability Consumers, consisting of
consumers who have sustainable access to, and facilities that allow them to
use or consume, a source of energy, other than gas, in quantities
sufficient to satisfy the requirements for which gas would otherwise be
consumed by them;

(c) Class 3: Core Consumers, consisting of consumers other than
those within Classes 1 and 2.

According to EUB, core consumer consumption is less than about 18% of total Alberta Consumption (See Energy Utility Board report EUB ST98-2007, calculation of available for export).

Since the regulations that define core consumers have been repealed, it is no longer clear that there is any restriction on export of natural gas from Alberta, as of 2008.

Encana happens to be doing both the Weyburn CO2 injection and oil recovery and is major player in the new BC natural gas. I analysed Encana's latest conference call.
http://nextbigfuture.com/2008/05/canadas-natural-gas-and-co2-stimulated....

The Encana portion of the Montney has 500 million cf to 1 billion cf a day long-term potential. [35.3 cubic feet in one cubic metre, so that amount would be 14.16 million to 28.3 million cubic metres/day, 3-6% of Canada's total natural gas production] They currently are getting 120 million cf/day.

New natural gas finds in Canada:
- Ootla, about 60 miles from Fort Nelson in northeastern British Columbia, may hold 9 trillion to 16 trillion cubic feet of gas. Horizontal wells test flowed at rates of 8.8 million cubic feet, 6.1 million cubic feet and 5.3 million cubic feet of gas a day.
- Montney find in BC (50-80 trillion cf)
- the Horn River basin (12+ trillion cf.)
- Quebec Utica Shale based on some of the Canadian-based research on the play to date the size of the resource is being estimated between 24 and 30 trillion cubic feet of natural gas.
- Smaller but significant find of 1.6 tcf in Southern Ontario

The total new reserves are 97 tcf to 140+ tcf. If they were developed with production rates proportional to Encana's efforts then they would provide 8 bcf/day to 22 bcf/day. The current projection if for Canada to produce 15 bcf/day in 2009 [5.5 tcf per year]. So these new finds appear likely to reverse the decline in Canada's natural gas producton.

Weyburn has 10 million tons of CO2 sequestered and Encana projects 30 million tons.