ARCHIVED - NEB Consultation: Oil and Gas Exports and Imports - 20 September 2012
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File Ad-GA-ActsLeg-Fed-NEBA-Amend 0101
20 September 2012
To: All Interested Parties
Board Consultation Concerning:
- Crude Oil, Refined Petroleum Products, Natural Gas Liquids (propane, butanes, ethane) and Natural Gas (including liquefied natural gas and compressed natural gas) Export Applications;
- Natural Gas Import Applications;
- Review of the Market-Based Procedure for Natural Gas Export Licence Applications; and
- Reporting Requirements under the National Energy Board Export and Import Reporting Regulations
Dear Sir or Madam:
The Jobs, Growth and Long-term Prosperity Act received Royal Assent on 29 June 2012. It contains amendments to the National Energy Board Act (the NEB Act) which affect the National Energy Board’s (the Board) review of oil and gas export and gas import applications.
As a result of these changes, the Board issued on 11 July 2012 an Interim Memorandum of Guidance Concerning Oil and Gas Export Applications and Gas Import Applications under Part VI of the National Energy Board Act (Interim Oil and Gas MOG). The Interim Oil and Gas MOG provided guidance to applicants until such time as the Board had completed a review and update of the National Energy Board Act Part VI (Oil and Gas) Regulations, SOR/96-244 (Part VI Oil and Gas Regulations). The Board also stated that it would review the Market-Based Procedure (MBP) for assessing natural gas export licence applications. The Board’s review would include an opportunity for public comment.
In order to implement the Jobs, Growth and Long-term Prosperity Act, streamline the regulation of hydrocarbon exports and imports, improve consistency between fuels, and update regulations to reflect current oil and gas market conditions, the Board proposes making the following changes to the regulatory framework:
- Institute a surplus test to reflect the changes to the NEB Act as well as update the process for assessing whether the quantity of oil or gas to be exported exceeds the surplus after considering reasonably foreseeable Canadian requirements and supply trends.
- Make the surplus test and the process for assessing surplus similar for both oil and gas.
- Reduce the information required for long-term export licence applications consistent with the NEB Act.
- Exempt natural gas imports from requiring Board authorizations consistent with the approach currently in place for other fuels.
- Modernize the reporting requirements to simplify the regulations and reflect current market conditions.
- Set a consistent two-year limit for short-term orders for all fuel types.
- Remove the requirement for a hearing for an oil export license application so that it is consistent with the recent changes to the NEB Act which made hearings no longer mandatory for gas import or export license applications.
 As required by subsection 26(1) of the National Energy Board Act Part VI (Oil and Gas) Regulations
The Board is seeking comment from interested parties on this proposal which is made to facilitate the consultations, and on certain aspects of the Part VI Oil and Gas Regulations, the MBP and the National Energy Board Export and Import Reporting Regulations, SOR/95-563 (Reporting Regulations). Specifically, the Board is asking for comments on the following questions:
1. Surplus Test for Oil and Gas Exports
The manner in which the Board considers applications for export licences differs between natural gas and crude oil.
Since 1987, the Board has used the MBP as its basis for review of natural gas export licence applications to satisfy Section 118 of the NEB Act. The MBP was founded on the premise that the marketplace will generally operate in a way such that Canadian requirements for natural gas will be met at fair market prices. The MBP has two components to ensure that natural gas licensed for export was both surplus to reasonably foreseeable Canadian requirements and in the public interest. The first component of the MBP is a public hearing which is comprised of three parts:
i) a complaints procedure, which allows Canadian natural gas users the opportunity to examine the application and complain to the Board if they cannot purchase gas under contract on similar terms and conditions including price,
ii) an export-impact assessment, and
iii) other public interest considerations.
 See Appendix A for an explanation of the MBP.
The second component is ongoing monitoring of markets by the Board to identify where markets may not be functioning properly or where the evolution of supply and demand casts doubt on the ability of Canadians to meet their future energy requirements at fair market prices.
For crude oil licence applications, the Board has developed a Fair Market Access (FMA) test. Under the FMA test, the applicant must inform Canadians of the potential crude oil export and offer it for sale to domestic buyers. If no Canadian buyer is interested in purchasing the energy on similar terms and conditions, including price, it is deemed to be surplus to Canadian requirements. The application must demonstrate that FMA was offered to Canadian buyers. There is no additional requirement to file an export impact assessment for crude oil licence applications.
 Memorandum of Guidance dated 17 December 1997: Implementation of the Fair Market Access Procedure for the Licensing of Long-term Exports of Crude Oil and Equivalent.
Section 118 of the NEB Act has been revised and now states: "On an application for a licence to export oil or gas, the Board shall satisfy itelf that the quantity of oil or gas to be exported does not exceed the surplus remaining after due allowance has been made for the reasonably foreseeable requirements for use in Canada, having regard to the trends in the discovery of oil or gas in Canada."
Section 24 of the NEB Act has been revised so that there is no longer a requirement to hold a public hearing when the Board receives an application for a licence to export or import natural gas.
With the removal of the requirement for: (1) a public hearing; and (2) Board regard to all considerations that appear to it to be relevant, the MBP requires reconsideration.
The Board is seeking comments on:
1. a) What form should the test take for both oil and gas so that the Board can satisfy itself that there is a surplus of hydrocarbon products to be exported?
i) If the Board were to retain a form of the MBP, what modifications should be made?
ii) If the Board were not to retain a form of the MBP, what should replace it?
iii) What complaint procedure, if any, should be retained by the Board?
1. b) What role should market monitoring play under the new NEB Act?
2. Information to be Furnished by Export Licence Applicants
The Part VI Oil and Gas Regulations identify the information required in applications for long-term export licences. Given the amendments to Section 118 of the NEB Act, the Board may consider discontinuing the requirement for some information.
 This is found in section 12 for natural gas, section 20 for natural gas liquids and sections 25 and section 25.1 for oil.
2. What modifications, if any, are required to the information that applicants must submit in requesting an export licence?
3. Authorizations for Natural Gas Imports
Natural gas is the only hydrocarbon for which the Board requires import authorizations. Although Section 116 of the NEB Act provides for the regulation of imports of other hydrocarbons (oil, refined petroleum products, propane, butanes, and ethane), these are exempted in the Part VI Oil and Gas Regulations.
 Propane, butanes and ethane imports are exempted in paragraph 19(a) and oil imports are exempted in paragraph 24(a).
Paragraph 118(c) of the NEB Act which provided the criteria to be considered by the Board in authorizing gas or oil imports, or gas or oil imports for subsequent export, was repealed in the Jobs, Growth and Long-term Prosperity Act.
3. a) Would it be appropriate to modify the Part VI Oil and Gas Regulations to exempt natural gas imports from Board authorization?
3. b) What are the implications, if any, of removing a gas import authorization requirement?
4. Reporting Requirements
All holders of export/import licences or orders are required by the Reporting Regulations to provide information monthly on the movement of hydrocarbons. The Board uses this information for ongoing monitoring of markets and publishes energy statistics on its website.
4. a) Are there changes to the reporting requirements that should be considered?
4. b) What changes are required to accommodate exports or imports of gas in the form of liquefied natural gas?
5. Short-term Hydrocarbon Export Authorizations
The Part VI Oil and Gas Regulations authorize the Board to issue short-term export authorizations for natural gas (not exceeding two years); propane or butanes (not exceeding one year); ethane (not exceeding two years); heavy crude oil (not exceeding two years) and oil, other than heavy crude oil (not exceeding one year).
 The relevant sections are subparagraph 15(a)(i) for natural gas, paragraph 22(a) for propane or butanes, paragraph 22(b) for ethane, paragraph 28(a) for heavy crude oil, and paragraph 28(b) for other than heavy crude oil.
5. a) Is there value in applying a two year term to all short-term hydrocarbon export authorizations?
5. b) What are the issues that should be considered, market or other, in applying a similar term to all short-term hydrocarbon authorizations?
Interested parties have until 26 October 2012 to submit comments to the attention of the Secretary of the Board referencing NEB file number: Ad-GA-ActsLeg-Fed-NEBA-Amend 0101 and referring to Part VI Oil and Gas Consultation.
Comments can also be submitted by facsimile to 403-292-5503, toll free to 1-877-288-8803 or by mail, hand delivery, or courier to:
Secretary of the Board
National Energy Board
444 - 7th Avenue SW
Calgary, AB T2P 0X8
Should there be any questions with respect to the Board’s Part VI consultation, please contact Karen Morton, Energy Trade Team Leader at 403-299-2755, Rudy Singer, Project Manager at 403-299-3623 or, for service in French, Ingrid Ektvedt, Market Analyst at 403-299-3518.
Alternatively, Board staff can be reached toll-free at 1-800-899-1265.
Secretary of the Board
The public hearing component of the Market-Based Procedure (MBP) is comprised of three parts:
- Complaints Procedure: The Complaints Procedure is based on the principle that gas should not be authorized for export if Canadians have not had an opportunity to buy gas for their needs on terms and conditions similar to those contained in the export application. The Board considers any complaint from Canadian natural gas market participants that they have not had the opportunity to buy gas on terms and conditions, including price, similar to those of the proposed export.
- Export Impact Assessment (EIA): The focus of the EIA is to assist the Board in its determination of whether the Canadian energy market can adjust to incremental gas exports without causing Canadians difficulty in meeting their energy needs at prices determined in the market. The EIA sets out the impact of the proposed export on Canadian energy and natural gas markets.
- Other Public Interest Considerations: In order to determine whether the proposed export is in the public interest, the Board considers any other factors that appear to it to be relevant including:
- the likelihood that the licenced volumes will be taken;
- the durability of the export sales contract;
- whether the export sales contract was negotiated at arm’s length;
- producer support for the export application;
- provisions in the export sales contract for the payment of the associated transportation charges on Canadian pipelines over the term of the export sales contract;
- the appropriate length for an export licence having regard to the adequacy of gas supply and associated export sales and transportation contracts; and
- the potential environmental effects of the proposed export and any social effects that would be directly related to those environmental effects.
 Excerpt from National Energy Board, Reasons for Decision KM LNG Operating General Partnership GH-1-2011, p. 7.
The other public interest considerations noted above are examples of the factors that the Board normally considers when assessing the merits of gas export licence applications. However, in specific proceedings, the Board may also consider any additional factors that appear to it to be relevant in the circumstances.
Under the MBP, the Board monitors Canada’s natural gas supply and demand. Monitoring assists the Board in identifying where markets may not be functioning properly or where the evolution of supply and demand casts doubt on the ability of Canadians to meet their future energy requirements at fair market prices.
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