NEB DROPS GAS EXPORT COST/BENEFIT TEST

Canada's National Energy Board has scrapped a controversial test it used last November to deny several bids to export more gas to the U.S.

NEB asked for written submissions and reviewed the cost/benefit test after protests from Canadian producers and U.S. customers.

Several U.S. buyers affected by the export denials covering 533 bcf launched court challenges of the NEB policy. They said the test was a violation of the Canada-U.S. Free Trade Agreement. It was used to determine whether exports would produce enough revenue for Canadian companies to finance replacement of the gas being exported.

NEB said its decision to drop the test was not related to the Free Trade Agreement.

The test also was criticized as being inexact and based on economic modeling and forecasting of factors such as interest rates, inflation, and gas prices.

The board agreed that test results varied widely depending on the economic assumptions.

It also said that the rule was too complicated to enforce.

The board believes it still has adequate powers to review export bids and protect the interests of Canadian gas users.

REACTION

Shell Canada Ltd., one of the exporters whose application was turned down, praised the NEB decision to drop the test. Shell executive Doug Stoneman said the ruling "very much" restores faith among U.S. buyers on the ability of Alberta gas marketers to deliver on sales promises.

Canadian Petroleum Association spokesman Hans Maciej also said removal of the test will restore the credibility of Canadian producers to deliver contracted gas to U.S. customers.

Alberta Energy Minister Rick Orman said the decision was important for the long term health of the gas industry and "an acceptance that Alberta has sole jurisdiction over development of its resources."

Maude Barlow, spokesman for the Council of Canadians, a nationalistic group, called the NEB decision a major capitulation to U.S. pressure and a fundamental breach of Canadian sovereignty. She said it was a step along the road to a continental energy policy in which Canadians would not have a right to a separate stake.

Spokesmen for opposition political parties also criticized the decision and said it removed an important test to protect Canadian consumers.

Major gas buyers in Ontario had argued in favor of keeping the test and expressed concern about future domestic shortages as a result of exports.

NEB will begin hearings this week on another issue involving gas exports.

The board's hearing on expansion proposals by TransCanada PipeLines Ltd., Calgary, will also examine the method of setting tolls to pay for export-related pipeline expansions.