A National Energy Board (NEB) hearing to consider an application submitted by Repsol Energy Canada Inc. will start on May 27, 2008.
The purpose of this hearing is to examine the merits of Repsol's application to import LNG and export natural gas and to determine the terms and conditions which may be imposed on such licenses, if they are approved.
Repsol has applied for 25-year licenses to import natural gas in liquefied form (LNG) at the Canaport LNG Terminal and to export natural gas using the Brunswick Pipeline.
What is a license?
A license allows the import or export of natural gas for any period of time not exceeding 25 years. The terms and conditions of a license may include the maximum quantities which are authorized, the duration of the license and the location where the import or export activities are permitted to take place.
What does the NEB examine during a license hearing?
When considering an import license application, the NEB takes into account the equitable distribution of the gas in Canada, and any other relevant matters.
For an export license, the NEB is required to consider all matters that are perceived as being relevant. The key is that the NEB must be satisfied that the quantity of gas to be exported is in excess of what will be reasonably required to meet Canada's future needs.
The NEB practice is to examine the surplus of gas available for export by using a regulatory approach known as the Market-Based Procedure (MBP). The MBP is based on the principle that properly functioning markets should determine the supply, demand and price for natural gas. In a market that is working well, Canadian purchasers are able to buy gas on terms and conditions similar to those offered to export buyers.
The MBP consists of two parts. First, a public hearing is held to consider the merits of the license application. Second, ongoing monitoring of natural gas markets ensures that natural gas licensed for export is surplus to reasonably foreseeable Canadian requirements.
In the public hearing, the NEB will consider:
- Potential complaints from Canadian buyers who have not had an opportunity to buy gas on similar terms and conditions as the proposed export.
- An export impact assessment to determine whether the export is likely to cause Canadians difficulty in meeting their energy requirements at fair market prices.
- Other public interest considerations.
If a license is granted, the NEB monitors exports to ensure that conditions of the license continue to be met. The NEB collects information from exporters and the natural gas marketplace to confirm that the market functions properly. The monitoring activities also include obtaining information from affected parties and potentially making decisions on complaints.
Considerations of public interest
All NEB decisions are based on the Canadian public interest, which refers to a balance of economic, environmental and social interests that change as society's values and preferences evolve over time. As a regulator, the NEB must estimate a proposal's overall public good and its potential negative aspects, weigh its various impacts, and make a decision.
In the case of an import/export license application, the NEB also evaluates other public interest considerations along with the commercial arrangements which support the proposed activities. These other considerations include:
- The likelihood that the licensed volumes will be taken and the appropriate length for the export license based on:
--Adequacy of supply, associated gas sales contracts, and associated transportation contracts;
--Any other relevant evidence.
- The durability of the supply and sales contracts which support the license.
- Whether the export sales contracts are negotiated at arm's-length.
- The verification that export sales contracts include provisions for the payment of associated transportation charges on Canadian pipelines over the term of the contract.
- The status of other associated regulatory authorizations.
- The potential environmental effects of the proposed import and export activities and any social effects that would be directly related to those environmental effects.
The purpose of this hearing, however, is not to re-examine the construction and operation of the Brunswick Pipeline and the Canaport LNG Terminal facilities, which have been reviewed and approved by the relevant governing authorities.
Other import/export authorizations
Authority to import or export natural gas may also be issued through import orders or export orders. Orders are completely separate from licenses. For example, some orders may be issued for periods of up to two years without volume restrictions. Orders are intended to facilitate the short-term trade of natural gas. A public hearing is not required before an order is granted. In January 2008, the NEB issued import and export orders to Repsol for a two year term starting August 1, 2008 and ending July 31, 2010.