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TOWARDS A NATURAL GAS INDUSTRY IN NEW BRUNSWICK

Historical Perspective

Even before natural gas was available by pipeline in North America, there was a small gas distribution industry. This essentially consisted of local enterprises which manufactured gas from coal and oil. But, because of its chemical composition, this manufactured gas had a relatively low energy value, and so its distribution and use were limited to small geographic areas. The first of these local distribution companies, or LDCs, were established in places like Baltimore and Boston. The first Canadian distribution company was Consumers Gas in Toronto, established in 1847.

The first natural gas was produced as a by-product of crude oil and was considered a waste product. While oil, a liquid, was easy to store and transport to markets, even in small quantities, there was no way economically to store natural gas during the early years of oil production. So, it was generally flared or burned at the wellhead.

Later, the industry realized natural gas could be a valuable source of energy--but only where customers could access it economically. This led to construction of the first pipelines to deliver it to market. Not until the 1930s, however, were techniques developed for building and operating high-pressure natural gas pipelines such as we have today.

In 1947, oil was discovered in the Leduc oil field of Alberta, and this became a significant event in the development of the Canadian gas industry. It led to discoveries of gas that demonstrated abundant quantities existed that could be commercially developed. Initially, the Alberta Conservation Board, which had been established nearly a decade earlier to regulate gas and oil operations in the province, developed relatively conservative estimates of the amount of gas that could be exported. But eventually it was realized that the available supply of natural gas in Alberta far exceeded the demand in that province.

In 1951, Parliament created TransCanada PipeLines in order to give Alberta natural gas producers access to markets in Ontario and Quebec. Construction of the pipeline began in 1956 and was completed in 1958. The following year, Parliament created the National Energy Board, acting on the recommendation of the Borden Commission, which identified the extent of potential gas reserves in Canada.

The major early customers of TransCanada included Quebec Natural Gas Corporation (the predecessor to Gaz Metropolitain in Montreal), Consumers Gas in Toronto, and Union Gas in Southwestern Ontario. The involvement of Union Gas, in particular, is noteworthy because that company has large storage facilities, enabling it to receive and store substantial volumes of gas during summer and thereby allowing the TransCanada system to operate more efficiently. The TransCanada system terminates near Montreal. The TransQuebec-Maritime system, a joint venture involving TransCanada and Gaz Metropolitain, extended service from near Montreal to Quebec City.

With the disappearance of federal pipeline incentives under the National Energy Plan in the 1980s, the opportunity for extending a pipeline farther East was lost. Consequently, Atlantic Canada has never had access to Western Canadian natural gas with which to develop its local industry and provide an alternative energy source for homes. Indeed, the single exception to the absence of natural gas in New Brunswick has been in Moncton, where it became available from local production in the early 1900s. As recently as 1974, Moncton Utility Gas had 810 customers, but the company ceased local production in 1991.

Today, Alberta produces 83 per cent of Canada's natural gas supply, with British Columbia and Saskatchewan supplying the balance. The total Canadian production is six trillion cubic feet (TCF) per year, of which about half is exported. These export volumes have allowed Western Canadian producers to realize economies of scale in production, resulting in lower domestic prices, while also adding strength to the Canadian economy. Now, with the development of the gas fields around Sable Island, consumers in the Maritime Provinces will have their first opportunity to receive significant quantities of natural gas.

In the United States, although the federal government had created a regulatory commission, a predecessor to today's Federal Energy Regulatory Commission (FERC), as early as the 1930s, it wasn't until after the Second World War that the natural gas industry began to grow rapidly. Significant improvements in pipeline technology and an increase in demand for energy in the post-war period provided the impetus for developing pipelines. In addition, pipelines built during the war to carry oil from the Gulf of Mexico to U.S. East Coast markets were converted to natural gas use, providing a relatively low cost gas transportation link into major U.S. East Coast markets.

In New England, natural gas became available in the mid-1950s. Because pipeline natural gas was substantially less expensive than manufactured gas and because its heating content was about double, existing local distribution companies (LDCs) expanded their systems dramatically; their capacity to deliver energy doubled as natural gas replaced manufactured gas.




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