Mobil, Montreal firm battle to deliver offshore natural gas

HALIFAX, Nova Scotia -- Mobil Oil Corp. and Montreal's Gaz Metropolitain and Co. are in a battle to deliver offshore natural gas to New England markets, each saying their bid is most economical and best for Canada's gas industry.

Earlier this month, Calgary, Alberta-based IPL Energy Inc. said its Consumer Gas Energy Inc. unit will buy a one-third stake in its proposed C$665 million (US$480 million) natural gas pipeline with TransCanada Pipelines Ltd. and Gaz Metro that will run 670 kilometers (415 miles) into Quebec and then connect with the U.S.-bound network.

IPL's pipeline would transport gas from the Sable Island field, off the coast of Nova Scotia, through Nova Scotia and New Brunswick to Quebec City where it would connect with Trans Quebec & Maritimes Pipeline Inc. and TransCanada's existing mainline system. Competing with IPL is a bid by Mobil Canada Ltd., in partnership with Westcoast Energy Inc. of Calgary and PanEnergy Corp., for a pipeline that would skirt Quebec and head directly to the northeast United States. IPL's TransMaritime Gas Transmission project would carry about 500 million cubic feet of gas a day, equivalent to anticipated production from the Sable Island field. The bid has the strong backing of Lucien Bouchard, the separatist Quebec premier, who is lobbying hard for the Quebec route. Mobil's Maritimes & Northeast Pipeline would cost $730 million and tap about 3.5 trillion cubic feet in Sable's six largest fields. An underwater pipeline is planned to carry an average 400 million cubic feet a day to a processing plant on the eastern shore of Nova Scotia. The pipeline is part of the $1.6 billion Sable Offshore Energy Project (SOEP), which includes development of the offshore fields. Both bids will have to first await the decision of federal regulatory authorities, which isn't expected until early fall. Mobil Canada has a 5-percent share and is the lead partner in the project with the most pinned on its success. Mobil's gas reserves in North America have been in slow, steady decline throughout the 1990s and Sable gas would increase its production in Canada by 50 percent. Timing is critical. The Mobil-led pipeline's partners believe deregulation and growing environmental concerns are about to open a window for Sable gas in the northeast United States. The key date is Nov. 1, 1999, the beginning of the winter heating season. They are now insisting on swift regulatory approval for the offshore development and the Mobil pipeline. Applications for both projects are now before a federal-provincial regulatory panel at hearings in Halifax, Nova Scotia. Deeply indebted Nova Scotia is counting on up to $2.5 billion in royalties over the next 20 years, while local businesses are gearing up for contracts to service the offshore construction. IPL's plan currently more than a year behind Mobil and a formal application will not even reach the country's National Energy Board before August. Public hearings are unlikely before winter at the earliest. To make up for lost time, the IPL team wants regulators to postpone a decision on the Mobil proposal until they have heard its own application. That request worries SOEP partners. Late last month, Ken Miller, Mobil Canada's vice president of frontier development and the head of the SOEP project, warned the panel to reject the rival bid. "If there is any delay of any significance, then the offshore project activities will stop," Miller told the panel. "We likely will lose our markets to other competing projects, who won't stop to wait for us." IPL is still insisting it be given a chance to present its application before the regulatory board makes a decision about a pipeline. While SOEP proponents said they need assurances by early autumn that a pipeline has been approved, Sophie Brochu, a vice president of Gaz Metropolitain, argued the deadline is meaningless. U.S. regulators, she said, will not get around to approving the cross-border portion of any pipeline until next year. "Why does a critical decision such as the choice of moving Sable gas through a bullet-like pipeline to the U.S. or through an integrated Canadian pipeline have to be made by September," she said. "There will be no second chance for Canada. Let's take time to look at all the alternatives, because we do have the time."

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