01/15/2013 08:49 EST | Updated 03/17/2013 05:12 EDT

Dwindling reserves, price volatility prompts Nova Scotia natural gas study

HALIFAX - Dwindling natural gas reserves coupled with price fluctuations has prompted the Nova Scotia government to launch a study on how it can secure a more stable supply for the province.

The study would examine market demand, infrastructure needs and the cost of reversing the flow of natural gas in the Maritimes and Northeast Pipeline, which is primarily used to ship gas to the northeastern U.S., Energy Minister Charlie Parker said.

He said it is being driven by a number of factors including market price volatility and a shrinking supply with the gradual winding down of ExxonMobil's Sable offshore project, which began production in 1999.

"There's uncertainty on both," Parker told a news conference Tuesday. "So how can we find that stability, that predictability for Nova Scotia homeowners and businesses?"

Parker said the study would also look at the possibility of establishing natural gas storage facilities as a means of controlling price variations because of increased demand.

He said natural gas prices in the province tripled in December because of supply shortages, especially for large industrial-scale users such as hospitals and universities.

Another factor contributing to the supply problem is the ongoing delay in the startup of Calgary-based EnCana's (TSX:ECA) Deep Panuke project.

The development received regulatory approval in 2007 and was initially supposed to go into production by late 2010. However, EnCana says the offshore platform won't be ready to produce until some time in the first half of this year.

"Essentially the market was expecting that gas to be there ... and when it wasn't there, the demand doesn't go away and the existing supply has to be used," said Michael Bird, a policy adviser and engineer with the province's Energy Department.

"It obviously was a factor, but once it comes on line it should help."

Parker said the emphasis on natural gas is timely as the province looks for greener sources of energy to reduce its greenhouse gas emissions by 2030.

He said the government wants to diversify its energy sources to include more natural gas, wind, tidal, biomass and hydroelectricity.

The government has issued a request for proposals for the study. The study is due by the end of March.

About 20,000 households and businesses use natural gas in Nova Scotia, according to the Energy Department.

Progressive Conservative Leader Jamie Baillie said it is about time the government explored more extensive use of its own natural gas resources instead of shipping the bulk of it to New England.

He also called on the government to delay sanctioning the Muskrat Falls hydroelectric project in Labrador until the natural gas study is completed.

"Natural gas may well be a more viable and cheaper and cleaner alternative than going all in with Muskrat Falls," said Baillie.

Muskrat Falls would be capable of generating up to 824 megawatts of electricity, 170 megawatts of which would go to Nova Scotia annually for 35 years. That would serve about 10 per cent of that province's power needs.

The development is expected to begin generating power in 2017.