CANADA TO REVIEW TEST FOR GAS EXPORT PERMITS

Canada's National Energy Board will review its gas export test in the face of mounting political and legal protest.

The board this month will reexamine the cost/benefit test it cited last November as a reason for its denial of export licenses covering 533 bcf in proposed shipments to U.S. customers. Western Gas Marketing Ltd., Shell Canada Ltd., Direct Energy Marketing Ltd., and Indeck Gas Supply Corp. were denied the permits.

Niagara-Mohawk Corp., a New York state distributor which was to have bought gas from Western Gas Marketing, started an action against the NEB decision in the Federal Court of Appeal.

Consumers Power Co. and Midland Cogeneration Venture Ltd., both of Michigan, filed suits against NEB decisions that blocked gas sales worth $600 million (U.S.) for cogeneration projects.

The board denied the export bids because of a cost/benefit test it uses to determine whether sales are of net benefit to Canada.

Under the 1 year old Canada-U.S. Free Trade Agreement, the board must allow the open market to set the price for export gas, but it can examine the benefits to Canada before approving an export.

NEB will accept written comments until Jan. 15 on its policy and will make a final decision by the end of February on whether to continue using the cost/benefit test.

PROVINCIAL, INDUSTRY VIEWS

Alberta Energy Minister Rick Orman said the Alberta government will be an intervenor in the NEB review and will consider adding its weight to court appeals by U.S. buyers.

Orman said the best test of the merits of export contracts is the open market rather than yardsticks that substitute the judgment of government regulators for the knowledge of companies in the business.

Alberta, Canada's No. 1 oil and gas producer and exporter, regards the NEB policy as federal interference in trade.

Bill Scotland, vice-president of Western Gas Marketing, said the NEB test is deeply flawed and relies on guesswork about the future of economic factors ranging from currency exchange rates to oil prices. Orman noted about 700 producers who sell to Western Gas voted to accept the deals the NEB rejected.

Michael Polsky, vice-president of Indeck, Chicago, said the NEB ruling clearly contradicts the Free Trade Agreement.

Polsky said he is unsure whether his company will get the gas it needs or whether it will reapply for a license. He said his company is in a "hostage situation."