N.S. Deep Panuke offshore gas project a lift to sluggish sector: experts

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HALIFAX - A natural gas project set for production this year could breathe new life into Nova Scotia's sluggish offshore sector, but it won't resuscitate the province's economy overnight after drowning in red ink, say analysts and industry experts.

Calgary-based EnCana's (TSX:ECA) long-awaited Deep Panuke field is on track to produce natural gas for major U.S. markets late this year after the company decided in 2007 to proceed with the project.
The provincial government says it stands to receive between $50 million and $300 million in royalties over Deep Panuke's anticipated lifespan of 13 years.
A windfall from Deep Panuke isn't expected this year, according to the Atlantic Provinces Economic Council. A senior policy analyst with the Halifax-based think-tank estimates Nova Scotia's royalties will fall between $1.5 and $5 million in the first few years of the project.
"When you have a $525-million deficit based on the latest budget forecast for this fiscal year, you're not going to resolve that vis-a-vis Deep Panuke," said Fred Bergman.
"(But) Deep Panuke is a step in the right direction."
It remains unclear exactly when Deep Panuke will begin producing natural gas.
Lori MacLean, a spokeswoman for EnCana, said the company aims to start production late this year - a general time frame that's been floated since the project was approved.
She said work continues on a well-drilling program and while bad weather has caused the occasional work delay, the project has been moving ahead steadily.
Once on stream, the $760-million project will produce and process natural gas from the Deep Panuke field, located about 250 kilometres southeast of Halifax on the Scotian Shelf.
Natural gas will make its way through a subsea pipeline to Goldboro, N.S., before being shipped to market through the Maritimes and Northeast Pipeline. The project is expected to deliver between 200 million and 300 million cubic feet of natural gas per day - roughly enough energy to heat 1,500 homes for one year.
The province's Energy Department has said the project will create 850,000 hours of work for Nova Scotians, including hundreds of jobs in construction, fabricating and engineering, before production begins.
Deep Panuke is playing a crucial role in preventing "an erosion of the intellectual and industrial capability of the province to help develop these things," said Paul McEachern, managing director of the Offshore/Onshore Technologies Association of Nova Scotia.
McEachern estimates that more than 400 direct and indirect jobs will be created once Deep Panuke is operational.
He also said the project will help showcase Nova Scotia as a desirable region for investment and development similar to the Sable Offshore Energy Project, operated by ExxonMobil (NYSE:XOM).
"What we are really interested in seeing is whether or not we can build on the success of developing these two projects in order to re-entice companies to explore here, which is something that has been a real problem in the last number of years," said McEachern, whose association represents suppliers to the offshore industry.
The Nova Scotia government expects Sable will generate significantly higher royalties than Deep Panuke - upwards of $3 billion. Sable, which began in 1999, has a life expectancy of about 25 years.
Regardless, Bergman said Deep Panuke, which was shelved in 2003 and redesigned to shave capital costs, is still a large enough project to get excited about.
"It keeps the offshore going, to put it bluntly. And that's a good thing."
The beauty of projects such as Deep Panuke and Sable, he said, is the infrastructure and room for future development. More wells can be tied into existing facilities if new discoveries are made.
"There's always that potential for surprises," said Bergman, adding that natural gas prices are on the upswing.
"We haven't had any nice ones in Nova Scotia in a little while, but should they happen, we'll be there."

Organizations: EnCana, TSX, Atlantic Provinces Economic Council Maritimes and Northeast Pipeline Energy Department Onshore Technologies Association of Nova Scotia Sable Offshore Energy ExxonMobil NYSE

Geographic location: Nova Scotia, HALIFAX, U.S. Goldboro

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  • John
    February 24, 2010 - 23:46

    While it is good to receive some royalties we should have received much more in the way of manufacturing here in Nova Scotia. We could learn from Newfoundland who makes sure they reap all the benefits from these projects. There is no good reason why a good portion of the fabrication could not have been done in this province instead of foreign yards that reap all the benefits from the manufacturing. We have enough skilled workers that are forced to leave this province because we don't demand the work be done here.