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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

The challenge of greater gas imports

Herb Emery

TransCanada Pipelines has announced a plan to ship more natural gas to New Brunswick and other points east with its existing gas pipeline to Quebec, from where the gas will feed an existing regional network of gas pipelines.

This development is significant for our province, notably because we are moving toward increased reliance in energy imports for New Brunswick and a loss of potential development of our own natural gas resources. And, as the pipeline that will bring western gas to the region was originally going to carry western Canadian oil to Saint John, it is hard to picture a future for the Energy East project.

Market conditions in the region, and in the west, have led to TransCanada’s plans to continue to use its pipeline for natural gas rather than converting the line to ship oil. This seems like a not-so-bad outcome for New Brunswick with the stalling of Energy East last year.

With the recent federal government purchase of the TransMountain pipeline, a second pipeline from Alberta likely to be completed and all those rail cars bought by the Alberta government to ship oil by rail, it seems highly unlikely that an oil pipeline to Eastern Canada is going to happen anytime soon.

The silver lining for New Brunswickers is that an increased supply of natural gas to the region provides nearer-term gains to consumers and potential indirect job creation with predictable supplies, and prices, of energy for businesses. The costs of natural gas for business and households are expected to fall and remain stable with the increased flow of western Canadian gas at a time when the offshore Nova Scotia supplies have come to an end.

So long as this reduction in natural gas prices is realized, then the ripple effects for the economy will come from the budget relief for households and the improved business conditions for exporters.

The increased imports of natural gas will also likely result in reduced urgency among voters for developing New Brunswick’s natural gas resources. Opponents of risking the health of the environment to address energy challenges of the province may see increased, cheaper gas imports as an acceptable direction. The fight in New Brunswick around climate and the environment has seemed less about the global climate crisis, but more about local environmental conditions.

For New Brunswickers to be sold on exploiting natural gas in the province, however, they would have to be convinced that even lower prices for gas can be had from the development of local supply. The lower cost gas produced in New Brunswick may not result in a lower price for consumers. Gas is a tradable commodity with a market-determined export price, meaning prices for gas consumers in New Brunswick would not necessarily be lower in the absence of regulating the price charged by gas distributors and the quantities of gas that producers can export.

Regulating the price, or the ability to export gas, may diminish the enthusiasm of capital for developing the province’s gas supplies.

Furthermore, providing a market for Alberta gas may alleviate the objections of western Canadians to paying equalization to our province while we choose to not to exploit our natural resource base. Now, some of that equalization money will at least flow back to the west through gas sales.

While there are many positives of natural gas imports for potentially reducing energy costs in the province, and for relieving the political tensions around developing our own natural gas resources, the rise in import dependence does create new challenges for the economy.

First off, an increase in imports of any kind for New Brunswick, and the region more broadly, is that we already have what seems to be unsustainable levels of imports. After 2008, imports to New Brunswick increased in value while the value of exports stagnated. Over the 20 years prior to 2008, the province’s trade deficit, i.e. imports less exports, was an average or six per cent of GDP. Since 2008, the excess of imports over exports has been 16 per cent of GDP.

To pay for imports, we need to export, or attract investment, or increase federal transfers, or we need to borrow. Higher gas imports, without an expansion in exports from the province, or an increase in investment, is a problem for the economy since both transfers and borrowing cannot increase indefinitely.

We can develop policies to reduce our consumption of imported goods and services by encouraging the development of local natural gas resources, and more generally seeking to switch our buying habits to local purchases over imports. But, aside from provincial sources of natural gas, import substitution with domestic production will raise prices for businesses and households and reduce consumption. This won’t be an easy sell as New Brunswickers since 1981 have never reduced aggregate consumption.

The economic prosperity of the province can only be assured with higher exports and investment. 

We need to leverage the improvements in business conditions that natural gas imports from western Canada will offer by looking for further policy and regulatory changes to increase the competitiveness of exporters in our province.

The traditional strengths of New Brunswick in manufacturing, transportation and trade are still working for us. We just need to let them do more. 

Herb Emery is a Brunswick News columnist and the Vaughan Chair in Regional Economics at the University of New Brunswick.

This article first appeared in Brunswick News publications – Feb. 27, 2019

The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.