Canada helps fill US energy gap

Utilities across the border will help keep California lights and air conditioners on this summer.

America's crisis is looking like Canada's opportunity. As the United States braces for a summer of steep fuel prices and rolling power blackouts, its friendly neighbor to the north - already its No. 1 foreign oil and gas supplier - is scrambling to be helpful.

Already the world's fifth-largest energy producer, Canada has 4.7 billion barrels of proven oil reserves, and is the No. 3 supplier of crude oil to the US, behind Saudi Arabia and Mexico. It's also the top foreign source of natural gas to the US.

President Bush unveiled an energy policy last week that emphasizes exploration for new energy sources, and Canada has vast long-term potential in its untapped reservoirs. But already, Canada is benefiting from American demand.

Some utilities are selling electricity over the border at premium prices to meet immediate shortfalls.

"Canada is exporting significantly to New York and New England," says Daniel Garant, senior manager for external markets at Hydro Quebec, a provincially owned electrical utility in Montreal. The US energy crunch "means an opportunity to increase our transactions in oil, natural gas, and electricity."

Last year, Hydro Quebec more than doubled its revenues from power sales to the US from 1999, to C$2.38 billion (US$1.5 billion). It added up to a year of record profitability - over C$1 billion.

Mr. Garant ascribes the current opportunities to three factors:

* The opening of the New York and New England markets under deregulation in 1999, letting Hydro Quebec and other players in.

* A virtual halt in construction of new generators, as both utilities and independent power producers waited to see the impact of the new market rules.

* The high rate of economic growth during the period.

A few electricity firms have seized upon California's energy crisis. Teck Cominco Ltd., a company that mines and smelts zinc, is shutting down its smelting operation for the summer to sell its electricity to the US, a mere 15 miles away by power line from its plant in Trail, British Columbia. Its 1,800 employees will get a three-month paid vacation because it's more profitable right now to produce megawatts than metal.

Already, the plant is running only at 70 percent of capacity and selling excess power back to the grid. In October, when the plant comes back on line, the company will compare zinc and open-market electricity prices before deciding how much zinc to resume producing, says spokesman Greg Waller.

BC Hydro, British Columbia's provincially owned utility, is also selling hydropower across the border. But it doesn't have a lot of excess capacity. "We're facing the same challenge as the Western US," says spokesman Wayne Cousins. "It's been dryer than normal, and our reservoirs are at 80 percent of normal."

Less water in the reservoirs means less to spin the turbines that create electricity. He expresses confidence that the utility will be able to meet regular customers' needs. But the drought "may constrain our ability to generate power for other entities," he says.

Ontario Power Generation sells power to Michigan and New York - from 2 percent to 9 percent of total production, says Barry Green, manager of US regulatory affairs for OPG. "We anticipate becoming more active once the Ontario market is deregulated in November," he says.

Opening Ontario's market to outside suppliers, he explains, will allow OPG to be licensed by the US Federal Energy Regulatory Commission. And that, in turn, will allow the utility to sell power not just to adjacent states but to other markets beyond.

Some independent energy brokers such as Optimum Energy Brokers in Calgary, Alberta, have squeezed some business out of US need.

"We had a good run for a while," says Optimim managing director Perry Undseth, when gyrations in the market in the early days of California's deregulation created lots of opportunity to buy low and sell high.

But the financial woes of big players such as Pacific Gas & Electric in California were bad news for Optimum. "When there's volatility, it's good for business, but when there's a credit issue, it really hurts our business. At one point they were losing a million dollars an hour. That can't go on forever."

The oil sector is experiencing something of a boom, too. Syncrude Canada Ltd., the largest player in the Alberta oil sands, produced a record 21.3 million barrels in the first quarter of this year. The Alberta oil sands have 300 barrels of proven reserves.

"The big question is, you wonder what more Canada can do in the next four or five years," says Ian Doig, editor of Doig's Digest, an oil and gas industry newsletter in DeWinton, Alberta.

"People talk about '300 billion barrels' as if it were a big bathtub and you could just put a straw into it and start sucking," he says of the Alberta oil sands. "But that stuff has to be mined."

The one gas pipeline under consideration will take years to build. And synthetic oil, as the product of oil sands is known, is quite energy- and capital-intensive to produce.

While the oil sands aren't going anywhere, they won't be filling America's tanks any time soon.

Doig suggests that the near-term beneficiaries of the American energy crunch may well be Libya, Iran, and Iraq: Some "loosening of US attitudes" toward them may occur if the US decides it needs a lot of hydrocarbons in a hurry.

He also predicts more deep offshore drilling off the coasts of Africa and Brazil: New technologies make depths of 6,000 meters or more, undreamed of a few years ago, easier to plumb.

(c) Copyright 2001. The Christian Science Monitor