Academic journal article Energy Law Journal

Report of the International Energy Transactions Committee*

Academic journal article Energy Law Journal

Report of the International Energy Transactions Committee*

Article excerpt

This Report summarizes two international arenas where important energy policy has emerged this year. The first section of this report discusses decisions by Canada's National Energy Board (NEB), addressing its policy on the export of natural gas and electric power to the United States. The NEB's decisions have a direct impact on domestic energy markets. The second section discusses steps the European Union (EU or the Union) is taking towards creating competitive energy markets among its member countries. The EU confronts many of the same regulatory issues that exist in the United States. Understanding the EU's models for creating and nurturing competitive markets can provide helpful guidance for managing domestic energy markets.

I. U.S.-CANADIAN ENERGY TRADE

Over two decades ago natural gas was discovered near Sable Island off the coast of Nova Scotia, one of the eastern Canadian provinces, and in 1999 natural gas began to flow from the Sable Offshore Energy Project (SOEP). More than half of the gas is exported to the northeastern United States. Early in 2002, the New Brunswick provincial government asked the NEB to reassess its policy for approving short-term exports of natural gas from the Scotian basin, arguing that a supply shortage was resulting and that Canadian natural gas purchasers were encountering difficulty in securing gas on the same terms and conditions as exports. In a September 2002 decision, the NEB rejected New Brunswick's call for greater regulatory control over short-term exports, but agreed to initiate closer monitoring of the operation of the maritime natural gas markets.1

A. Background

Exports of natural gas from Canada must receive NEB approval, either by the granting of an export license or the making of a short-term export order. Section 118 of the National Energy Board Act (NEBA) requires the NEB upon application for a natural gas export license to "satisfy itself that the quantity of oil or gas to be exported does not exceed the surplus remaining after due allowance has been made for the reasonably foreseeable requirements for use in Canada having regard to the trends in the discovery of oil or gas in Canada."2 Export licenses are issued for the export of natural gas for a period of more than two years. The NEB assesses applications for export licenses according to a Market Based Procedure (MBP), the fundamental premise of which is that the marketplace will generally operate in such a way that Canadian requirements for natural gas will be met at fair market prices. Procedures under the MBP enable Canadian natural gas purchasers to intervene in an application for a natural gas export license (via a complaints procedure) if they believe they have not been able to purchase natural gas on terms and conditions similar to those of the proposed export. No complaints have been made since the introduction of MBP in 1992. The MBP also includes an ongoing monitoring component through which the NEB undertakes periodic assessments of the long-term outlook for energy supply and demand in Canada.

Applications for the export of natural gas under short-term orders of less than two years follow a more streamlined procedure under the National Energy Board Part VI (Oil & Gas) Regulations (NEBR).3 The NEBR were designed to facilitate short-term trade in natural gas with a minimum of regulatory intervention. They permit the Board to include in short-term orders the terms and conditions respecting the point of exportation and "the maximum daily, monthly, annual and term quantities of the gas that may be exported."4 The NEB does not have the authority to place conditions with respect to pricing, nor does a complaint procedure exist for short-term exports. Since 1991 the NEB has approved blanket short-term export orders that provide natural gas exporters with the ability to export gas at multiple export points.

B. NEB Review of Natural Gas Export Policy

In February 2002, the Province of New Brunswick filed an application with the NEB requesting a hearing to establish more stringent rules for considering applications of short-term export orders for incremental supplies from the Scotian basin when those supplies cannot meet both Canadian and export requests for service. …

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