ENVIRONMENTAL ISSUE: CANADIAN GAS EXPORTS TO U.S.

Conflicts between Canada's natural gas industry and its environmental critics will move to U.S. battlegrounds this winter.

Both sides will mount campaigns for public support of consumers of Canadian gas in northern California and the U.S. Pacific Northwest. The Canadian factions also will aim their message at utilities, regulators, and politicians in key markets.

The battle for public opinion will be a continuation of skirmishes that erupted this year before Canada's regulatory bodies and courts.

U.S. West Coast states are major markets for Canadian gas producers who are riding a crest of export sales to U.S. customers after several lean years.

Gas shipments to the U.S., Canada's only export customer for that fuel, are expected to reach 2.4 tcf this year. They have increased from only 3.97% of U.S. demand in 1986 to an expected 12% this year.

California and the Northwest are traditionally strong markets for Canadian gas, but pipeline connections and deliveries are increasing to other markets as well.

Strong export markets are a major source of Canadian industry income and export earnings for the economy. But some environmentalists argue they also spawn record levels of exploration and development without adequate environmental screening.

Canadian drilling is expected to account for a record 11,500 wells this year.

BATTLE LINES

The industry campaign for public support this winter will be spearheaded by the Canadian Association of Petroleum Producers (CAPP) and its member companies.

Opposing the industry is the Rocky Mountain Ecosystem Coalition (RMEC), an environmental group that has cooperative ties with Greenpeace Canada. RMEC will organize an environmental campaign in the U.S. Pacific Northwest. Greenpeace is already campaigning in Canada and the U.S. against gas development.

CAPP Pres. Gerry Protti says RMEC is a fringe group which he does not believe represents the environmental mainstream. But, he says, it is important that the industry get its message across to gas consumers and others in the U.S. The message: There is a high level of industry regulation and environmental protection in place in western Canada, where most of Canada's gas is produced.

On the other hand, Mike Sawyer, executive director of RMEC, declares Canada's environmental rules are inadequate. He says there is no effective regulation of the environmental effect of exploration and development. What's more, Canadian regulatory safeguards for the environment are lax compared with those in the U.S.

INDUSTRY'S VIEW

CAPP is concerned that some U.S. customers may not have enough information about Canadian regulation to analyze what groups such as RMEC may say to them. So the association will speak out on behalf of its members but also encourage one on one communication between member companies and their U.S. customers.

Protti says customers must be told what the Canadian industry does to protect the environment. He cites a "rigorous, effective regulatory regime" at all stages of industry activity in Alberta, for example, by far Canada's largest oil and gas producing province,

CAPP says there are strict regulatory criteria in place for all phases of operations from exploration to well and project abandonment. An individual drilling project may be required to meet as many as 80 specific conditions before it is approved by regulators.

Protti said, "CAPP, in preparation for the National Energy Board review of the gas export approval process, documented all of the applicable federal, provincial, and municipal legislation or regulation in the producing provinces of Canada.

"Just listing the legislation and regulation filled a I 'y in. thick binder. The full documents would fill a room."

ENVIRONMENTALIST REBUTTAL

In rebuttal, RMEC's Sawyer says the essential theme for his group is that there is little or no environmental assessment conducted in Canada on the upstream activities of the industry. He says more than 200,000 wells have been drilled in Alberta and not one has been the subject of a specific environmental impact assessment.

Sawyer said, "As a result of that and a rapid increase in drilling, mostly spurred by export demand, there are significant unacknowledged environmental consequences on wildlife, wilderness, ground water, air quality, and fisheries.

"Some critics have suggested our purpose is to deny gas exports for cogeneration. There has been some misunderstanding. It is not RMEC's position, nor is it ever likely to be, that the industry's activities are inappropriate and should not be happening.

"Our view is that it is clearly in society's best interest to use the resource. If there is proper environmental assessment and it can be demonstrated that the resource can be used without significant environmental, social, or economic consequences to Canada, that is the decision that can be made. We're not trying to shut down the industry."

RMEC plans to voice its concerns to various U.S. audiences this winter, including those in Seattle, Portland, San Francisco, Sacramento, and smaller regional centers. Sawyer says one audience is a broad environmental community of 200,000 persons in the Pacific Northwest who are already converts on environmental issues.

The RMEC message will also be aimed at regional utilities and state and federal politicians and regulators.

RMEC vowed to take its campaign directly to U.S. consumers shortly after Canada's federal government decided to exempt oil and gas exports from federal environmental assessments.

FEDERAL ACTION

Ottawa plans to proclaim a Canadian Environmental Assessment Act in January.

The new act will be designed to replace the current Environmental Assessment Review Process, used by environmentalists to challenge exports. Responsibility for environmental assessment of exports will rest with NEB without review by other government entities. Ottawa said such a review would be a duplication of effort.

Stewart Elgie, a lawyer with the Sierra Legal Defence Fund, said Ottawa had caved in to industry pressure and there is no rational way to defend the decision to exempt oil and gas from close environmental scrutiny.

CAPP welcomed the proposed change, saying it will prevent environmental reviews that have been done by provincial regulators.

Sawyer says RMEC has limited funds for research but receives advice from the Sierra Legal Defence Fund, which he says does free legal work but is not associated with the Sierra Club.

He says RMEC cooperates with Greenpeace, but that organization has a different focus, global warming issues, and opposes fossil fuels in favor of alternate fuels.

"That's not a position RMEC has," Sawyer said. "There is nothing in our position that is absolutely irreconcilable with Greenpeace, but we don't necessarily share all the same values or ideas."

Greenpeace held press conferences in Calgary and Washington, D.C., last spring to announce a campaign against Canadian gas exports to the U.S. It also has participated in NEB hearings.

Kevin Jardine, Calgary spokesman for Greenpeace, said the group wants to change the perception that gas is an environmental wonder fuel. Jardine says gas is a cleaner burning fuel than oil or coal but causes the same volume of pollution when the total costs of finding, producing, processing, and transporting gas to U.S. markets are considered.

Fred Munson, an energy policy analyst for Greepeace in the U.S., said, "Natural gas is essentially just as dirty and destructive as oil, but the energy industry is spending a lot of money to make us think otherwise."

VICTORY, DEFEAT

Environmentalists scored a temporary victory when NEB placed a Feb. 16 Approval of export licenses on hold after a Feb. 24 Supreme Court of Canada ruling. The exports by Western Gas Marketing Ltd., ProGas Ltd., Husky Oil Ltd., Shell Canada Ltd., and Brooklyn Navy Yard Cogeneration Partners LP involved volumes totaling almost 2 tcf during 15 years.

The court ruling on electrical power exports from Quebec to customers in New York state said NEB has the right to review upstream facilities associated with energy exports.

RMEC said the ruling should apply to gas and a hearing should be reopened on the gas export licenses. NEB asked for submissions on how it could comply with the court ruling and in July rejected the bid for a new hearing.

NEB's ruling said upstream effects of gas export applications will be reviewed only if the exporter needs to build field facilities. It cited provisions of the Federal Environmental Review Process that say existing projects cannot be challenged retroactively.

RMEC's Sawyer called the NEB ruling despicable.

"From now on," he said, "the gloves are off. We'll trigger American resistance to Canadian gas exports and press our court action against the NEB."

A later application by RMEC to the Federal Court of Canada for permission to appeal the NEB decision was rejected by the court, which hears matters related to federal agencies.

Environmentalists and the industry faced off again last September during NEB hearings on gas export applications covering about 430 bcf during 15 years. Applicants were CanStates Marketing Ltd., Chevron Canada Resources Ltd., Renaissance Energy Ltd., and "Western Gas Marketing Ltd.

The NEB turned down a bid by environmentalists to adjourn the hearing. They argued the board had allowed firms to avoid the information requirements of the National Energy Board Act and thus did not have authority to hear the applications.

NEB's Ken Vollman ruled that if parties believed information was missing they would have an opportunity to ask for it during the hearing.

The NEB hearing also rejected a request to have U.S. carbon dioxide emission data provided on the Hermiston cogeneration project in northern Oregon, which will burn Canadian gas.

NEB said it must "respect the abilities of U.S. regulators to guard against transboundary environmental effects that result from activities and undertakings inside that country's borders."

Greenpeace's Jardine said the NEB failed in its responsibility for environmental protection in Canada.

During NEB hearings, environmentalists tried without success to link proposed wells or gas processing plants to specific gas export commitments. Industry spokesmen argued that gas used to meet export requirements comes from corporate pools largely built from current production, and new licenses do not necessarily mean new facilities.

UPSTREAM BATTLES

In addition to regulatory clashes on gas export, there have been several disputes this year between industry and environmentalists on specific drilling programs in Alberta.

Husky Oil Ltd., Calgary, received approval from Alberta's Energy Resources Conservation Board (ERCB) to drill five wells near a potential commercial oil discovery on Moose Mountain in the Kananskis Country recreational area. The drilling project, on the eastern slopes of the Rocky Mountains west of Calgary, was opposed by RMEC and other environmental groups.

ERCB said the Husky project is in the public interest but added if the site is commercially viable, effects on residents and wildlife habitat must be evaluated.

Environmentalists also contested drilling approvals for several companies in or near Dinosaur Provincial Park, about 100 miles southeast of Calgary. The park has been declared a World Heritage Site by the United Nations.

ERCB rejected a request by the Alberta Wilderness Association (AWA) for public hearings and intervenor status on 13 drilling permits.

AWA Pres. Cliff Wallis said there is a problem with ERCB regulations and the board's narrow definition of who should be granted intervenor status.

Wallis acknowledged that the usual interpretation of intervenor involves those who are adjacent landholders or who have a direct financial interest. But he said when virtually no one lives next to a sensitive area only groups such as AWA can defend the public interest.

Environmentalists scored a victory in September when ERCB turned down an application by Amoco Canada Petroleum Ltd. for a gas drilling project in the Whaleback region, 75 miles south of Calgary. The ruling also gave a high profile to the question of Alberta policy on protected areas.

The project was opposed by the Whaleback Coalition, which included a number of environmental groups.

The board said it was not in the public interest to approve an energy development project that might "compromise a scarce or unique" ecological area. The decision added that the Amoco application was "deficient in key areas and inconsistent with existing land use policies."

It also said the future of the Whaleback area should be considered under Alberta's Special Places 2000 document, a plan under development to set aside protected areas.

Amoco had paid the province $1.6 million for oil and gas rights under the proposed drilling area. Amoco voiced disappointment that the board appeared to have based its decision on vague land use guidelines and potential land use policies.

The Whaleback decision triggered petroleum industry support for well defined ground rules and definition of protected areas.

CAPP Chairman David O'Brien has urged the government to proceed with the Special Places 2000 plan. He says CAPP supports the idea of well managed buffer zones around core protected areas where specifically defined industrial activity can occur.

The petroleum industry and environmentalists agree on one thing: Their skirmishes over environmental issues will continue in the regulatory arena. But the focus this winter will be on U.S. customers who make the market for Canadian gas.