T H E I M P O R T A N C E O F T I M E L Y C O N S T R U C T I O N O F N E W P I P E L I N E I N F R A S T R U C T U R E T O C A N A D A A N D C A N A D I A N S

O c t o b e r 2 0 0 5

E X E C U T I V E S U M M A R Y Nor th Amer ica i s enter ing a per iod o f much t igh te r o i l and na tura l gas supp ly and demand ba lances . Meet ing the fu tu re supp ly needs i s dr i v ing s ign i f ican t new inves tment in non- t rad i t iona l resource deve lopment inc lud ing o i l sands and heavy o i l , A rc t i c natura l gas, coa l bed methane, o f fshore o i l and na tu ra l gas and impor ted l ique f ied natu ra l gas . T ime ly investment in and cons t ruc t ion o f p ipe l ine and s torage in f ras t ructure to connec t these new supp l ies to marke ts w i l l be c r i t i ca l to ensure Nor th Amer ica has adequate supp l ies o f energy . These inves tments w i l l b r ing s ign i f i can t economic benef i t s to Canada and Canad ians . However , p lann ing, f inanc ing and const ruc t ing la rge p ipe l ine p ro jec ts i s complex and f raught w i th de lays that can a r i se in ensur ing economica l l y compet i t i ve f i sca l cond i t ions , rece iv ing regu la tory approva ls and permi ts and log is t i ca l cons t ra in ts dur ing cons t ruc t ion . Bes ides de lay ing the economic benef i t s that these p ro jec ts b r ing , de lays in the inves tment in and cons t ruct ion o f new t ranspor ta t ion in f ras t ructure w i l l pu t add i t iona l p ressure on the supp ly -demand ba lance in Nor th Amer ica resu l t ing in genera l l y h igher energy costs to consumers. To unders tand the economic benef i t s to Canada and Canad ians o f these inves tments as we l l as the costs to consumers f rom de lays in the t ime ly cons t ruc t ion o f c r i t i ca l p ipe l ine in f ras t ruc ture , CEPA commiss ioned two economic s tud ies . The two s tud ies under taken by CEPA serve to quant i f y the economic benef i t s tha t resu l t f rom p ipe l ine inves tment and to i l l us t ra te the po tent ia l l y very s ign i f i cant cos ts to Canad ian res iden t ia l , commerc ia l and indus t r ia l consumers tha t wou ld resu l t f rom de lays in the cons t ruc t ion o f new p ipe l ine in f ras t ruc tu re in Nor th Amer ica . Br ie f l y , the resu l ts o f these s tud ies ind ica te tha t :

• The economic benef i t s to Canada and Canad ians f rom new p ipe l ine in f ras t ructu re investment a re s ign i f i can t . A hypothe t ica l $1 .52 b i l l i on , 1000 k i lomet re , na tu ra l gas p ipe l ine loca ted ha l f in A lber ta and ha l f in Br i t i sh Co lumbia wou ld increase Canad ian GDP in the o rder o f $1 .2 b i l l i on ( inc lud ing induced impac ts ) . Of the to ta l , $202 mi l l i on in GDP impac ts wou ld fa l l ou ts ide o f A lber ta and Br i t i sh Co lumbia . A to ta l o f $856 mi l l i on in labour income wou ld be genera ted inc lud ing $130 mi l l i on ou ts ide o f A lber ta and Br i t i sh Co lumbia . The employment impac t wou ld amount to 17,384 jobs inc lud ing 2 ,907 in reg ions o ther than A lber ta and Br i t i sh Co lumbia . The ex A lber ta /Br i t i sh Co lumbia impac t wou ld fa l l ma in ly in Ontar io bu t s ign i f i can t numbers o f jobs cou ld be expec ted to occur in Quebec, Saska tchewan and Man i toba.

• L ikewise , the cos ts to Canad ian na tura l gas consumers resu l t ing f rom de lays in the cons t ruc t ion o f new p ipe l ine in f ras t ructure in Nor th Amer ica w i l l be cos t l y . The cos t to Canadians f rom a two year de lay in the const ruc t ion o f the Mackenz ie Va l ley P ipe l ine , A laska Gas P ipe l ine and new LNG te rmina ls cou ld be as much $57.7 b i l l i on over the 2006-2025 per iod in cons tan t 2005 do l la rs . The impac ts wou ld be fe l t mos t l y in A lber ta and Ontar io . The inc rease in the cos t o f gas to consumers in these two prov inces r i ses by $20.2 b i l l ion and $19 .1 b i l l i on , respect i ve ly . In A lber ta the l ions ’ share o f the impac t fa l l s on the indus t r ia l sec tor . The s i tua t ion i s qu i te d i f fe ren t in Ontar io where a lmos t fo r ty percent o f tha t impac t i s on res iden t ia l gas consumers . In fac t , the Ontar io res iden t ia l sec to r su f fers a $7 .8 b i l l i on cos t increase through the forecas t per iod or about ha l f o f the inc rease taken by the res iden t ia l sec tor in Canada.

The two s tud ies under taken by CEPA serve to quant i f y the economic benef i t s that resu l t f rom p ipe l ine investment and to i l l us t ra te the po ten t ia l l y very s ign i f i can t costs to Canad ian res iden t ia l , commerc ia l and indus t r ia l consumers tha t wou ld resu l t f rom de lays in the t ime ly cons t ruc t ion o f new p ipe l ine in f ras t ruc tu re in Nor th Amer ica . The resu l t s o f these s tud ies emphas ize the impor tance for governments to ensure t ime ly regu la tory rev iew and approva l o f new p ipe l ine in f ras t ruc tu re p ro jec ts and to ensure tha t the f i sca l t rea tment prov ides an a t t rac t i ve and compet i t i ve inves tment c l imate .

I N T R O D U C T I O N Canad ians and the Canad ian economy benef i t s ign i f i cant l y f rom the deve lopment o f i t s energy resources par t icu la r l y i t s o i l and na tura l gas resources . The o i l and natura l gas sec tor i s the lead ing p r i va te investment sec tor in Canada and expor ts o f o i l and na tura l gas a re the la rges t con t r ibu tors to Canada’s pos i t i ve t rade ba lance . Bes ides these economic benef i t s , Canad ians hea l th , sa fe ty and persona l we l l be ing depend on the re l iab le and a f fordab le supp ly o f o i l and na tura l gas to hea t the i r homes, to power the i r bus inesses and to t ranspor t them and the i r goods e f f i c ien t ly . The p ipe l ine sec tor i s the v i ta l l i nk in de l i ver ing o i l and na tura l gas f rom produc ing reg ions to markets throughout Nor th Amer ica in a sa fe , t ime ly and e f f i c ient manner . Members o f the Canad ian Energy P ipe l ine Assoc ia t ion (CEPA) t ranspor t 95% o f the o i l and na tu ra l gas tha t i s produced in Canada and operate over 100 ,000 o f k i lomet res o f p ipe l ine in e igh t p rov inces and two te r r i to r ies and in terconnec t a t the Canada/Un i ted S ta tes (US) border w i th the US p ipe l ine ne twork . Approx imate ly 60% o f the vo lume o f o i l and na tura l gas t ranspor ted by our members i s expor ted to the US. Nor th Amer ica i s enter ing a per iod o f much t igh te r o i l and na tura l gas supp ly and demand ba lances . Meet ing the fu tu re supp ly needs i s dr i v ing s ign i f ican t new inves tment in non- t rad i t iona l resource deve lopment inc lud ing o i l sands and heavy o i l s , Arc t i c na tura l gas , coa l bed methane, o f fshore o i l and na tu ra l gas and impor ted l ique f ied na tu ra l gas. Much o f these resources are loca ted in a reas where there i s l i t t l e or no ex is t ing t ransmiss ion and s torage in f ras t ruc tu re o r where the ex is t ing in f ras t ructure i s opera t ing a t or near capac i ty to serve ex is t ing supp ly . T o c o n n e c t t h e s e r e s o u r c e s w i t h m a r k e t s , t h e C a n a d i a n p i p e l i n e

i n d u s t r y i s f o r e c a s t t o i n v e s t a p p r o x i m a t e l y $ 2 0 b i l l i o n ( C D N ) o v e r t h e n e x t t w o d e c a d e s i n p i p e l i n e , d i s t r i b u t i o n a n d s t o r a g e i n f r a s t r u c t u r e .

T ime ly investment in and cons t ruc t ion o f p ipe l ine and s torage in f rast ruc ture to connect these new supp l ies to marke ts w i l l be c r i t i ca l to ensure Nor th Amer ica has adequate supp l ies o f energy and w i l l b r ing s ign i f ican t economic benef i t s to Canada and Canad ians . A t the same t ime p lann ing , f inanc ing and cons t ruc t ing la rge p ipe l ine p ro jec ts wh ich can range in s ize f rom hundreds o f m i l l ions do l la rs to ten to twenty b i l l i on do l la rs i s complex and i s f raught w i th de lays tha t can a r i se in ensur ing economica l l y compet i t i ve f i sca l cond i t ions, rece iv ing regu la tory approva ls and permi ts and log is t i ca l cons t ra in ts dur ing const ruc t ion. Bes ides impact ing the economic compet i t i veness o f the these p ro jec ts , de lays in the inves tment in and cons t ruc t ion o f new t ranspor ta t ion in f ras t ruc ture w i l l pu t add i t iona l pressure on the supp ly-demand ba lance in Nor th Amer ica resu l t ing in genera l l y h igher energy cos ts to consumers . To unders tand the economic benef i t s to Canada and Canad ians o f these inves tments as we l l as the cos ts to consumers f rom de lays in the const ruc t ion o f c r i t i ca l p ipe l ine in f ras t ructure , CEPA commiss ioned two s tud ies by Angev ine Economic Consu l t ing L td . :

- The Economic Impac ts o f Const ruc t ing an Energy P ipe l ine , May , 2005 1, and - The Costs to Canad ian Consumers in De lays in Const ruc t ion o f Energy

Transpor ta t ion In f ras t ruc tu re , Oc tober , 2005 2.

1 See Appendix 1 2 See Appendix 2

E C O N O M I C B E N E F I T S F R O M E N E R G Y P I P E L I N E I N V E S T M E N T S To assess the economic benef i t s to Canada f rom inves tment in energy p ipe l ines , the cos ts to cons t ruct a hypothe t i ca l 1000 k i lomet re , na tura l gas p ipe l ine located ha l f in A lber ta and ha l f in Br i t i sh Co lumbia were es t imated in constan t 2005 do l la rs and mode led us ing S ta t i s t i cs Canada ’s In ter reg iona l Input /Outpu t Mode l . The to ta l es t imated cos t o f $1 .52 b i l l i on was b roken down in to components match ing the var ious commodi ty cost components tha t dr i ve the I /O Mode l . The resu l t s p rov ided the d i rec t and ind i rect impac t o f th is inves tment by reg ion on GDP, labour income, employment and tax revenues . B r ie f l y the resu l ts ind icate tha t , wh i le the ma jor i ty o f benef i t s occur in the reg ions where the p ipe l ine i s cons t ruc ted , inves tments in p ipe l ine in f ras t ruc ture generate s ign i f i can t pos i t i ve impac ts to o ther reg ions o f Canada. The resu l ts can be summar ized as fo l lows:

• The d i rec t impac t on GDP is es t imated to be $441 mi l l i on and the ind i rec t impac t , $498.5 mi l l ion , fo r a combined e f fec t on GDP o f $939.9 mi l l ion . The d i rect impac ts a re , as expec ted, concent ra ted in A lber ta and Br i t i sh Co lumbia where the combined impact i s about $414 mi l l i on or approx imate ly 94 percen t o f the to ta l . However , a s ign i f i can t por t ion o f the GDP ind i rect impac ts (over $100 mi l l i on o r 21 percen t o f the to ta l ) occur in Ontar io and Quebec where var ious goods requ i red for the pro jec t a re manufac tu red .

• As w i th the impac t on GDP, the l ion ’s share o f the bo th the d i rec t and ind i rec t

labour income impac ts fa l l i n A lber ta and Br i t i sh Co lumbia . However , more than $85 mi l l i on in ind i rec t labour income (more than 25 percent o f the to ta l ) i s generated in Ontar io , Quebec and o ther reg ions o f the coun t ry because o f the requ i rements fo r goods and serv ices a r i s ing f rom const ruc t ion o f the p ipe l ine .

• As an t i c ipa ted , most o f the d i rec t employment in re la t ion to cons t ruc t ion o f

the p ipe l ine occurs in A lber ta and Br i t i sh Co lumbia . An est imated 5 ,223 jobs a re c rea ted in A lber ta and B .C. d i rec t l y , and ano ther 5 ,258 jobs are crea ted in those p rov inces ind i rec t l y - - fo r a to ta l o f 10 ,481 jobs - - dur ing the cons t ruc t ion phase . However 1 ,894 “ ind i rec t ” jobs are c rea ted throughout o ther par ts o f Canada, ma in ly in Ontar io , Quebec , Man i toba and Saska tchewan where a s ign i f i can t 26 percen t o f the ind i rec t employment e f fec ts occur .

• Const ruc t ion o f the p ipe l ine wou ld genera te more than $42 mi l l i on in ind i rect

tax revenues fo r a l l governments . The GST and the BC prov inc ia l tax account fo r mos t o f the ind ica ted $34 mi l l i on o f GST, PST and HST revenues . Federa l and p rov inc ia l gaso l ine taxes are the ma in source o f the remain ing revenues.

• Overa l l , i nc lud ing es t imated induced impac ts , the to ta l impact on GDP wou ld

be in the o rder o f $1 .2 b i l l i on o f wh ich $202 mi l l i on wou ld fa l l ou ts ide o f A lber ta and Br i t i sh Co lumbia . A to ta l o f $856 mi l l i on in labour income would be genera ted inc lud ing $130 mi l l i on outs ide o f A lber ta and Br i t ish Co lumbia . The employment impac t wou ld amount to 17 ,384 jobs inc lud ing 2 ,907 in reg ions o ther than A lber ta and Br i t ish Co lumbia . The ex A lber ta /Br i t i sh Co lumbia impac t wou ld fa l l ma in ly in Ontar io but s ign i f i can t numbers o f jobs cou ld be expec ted to occur in Quebec, Saskatchewan and Man i toba .

C O S T S F R O M D E L A Y S I N C O N S T R U C T I O N O F P I P E L I N E S To i l l us t ra te the impac t o f de lays in the inves tment and cons t ruc t ion o f new t ranspor ta t ion in f rast ruc tu re on Canad ian consumers , a s tudy based on the methodo logy u t i l i zed by Energy and Env i ronmenta l Ana lys is Inc . (EEA) in the i r Ju ly 2004 INGAA Foundat ion, Inc . s tudy An Updated Assessment o f P ipe l ine and S to rage In f ras t ruc ture for the Nor th Amer ican Gas Marke t : Adverse Consequences o f De lays in the Const ruct ion o f Na tura l Gas In f ras t ruc tu re was under taken. The s tudy es t imates the cos t to Canad ian res iden t ia l , commerc ia l and indust r ia l consumers resu l t ing f rom a two-year de lay in the cons t ruc t ion o f pro jected na tura l gas p ipe l ine , l i que f ied na tu ra l gas and na tura l gas s to rage in f ras t ructure requ i red to meet fo recas t demand in the per iod f rom 2005 – 2025. The s tudy used the same mode l f ramework as the EEA INGAA s tudy to assess the impac t on Canad ian gas consumers f rom assumed de lays in in f ras t ructure cons t ruc t ion . The Canadian ana lys is i s more up to da te than the 2004 EEA s tudy under taken fo r INGAA. The Base Case gas pr i ce and gas consumpt ion vo lume da ta were down loaded f rom EEA’s September 2005 Base Case. The De lay Case ou tpu t was obta ined f rom a model run under taken spec i f i ca l l y fo r CEPA in Oc tober 2005 tha t incorpora ted var ia t ions f rom the Base Case assumpt ions . B r ie f l y , the resu l t s ind ica te tha t the impac ts o f such a de lay on Canad ian gas consumers wou ld be very subs tan t ia l w i th pr i ces be ing dr i ven up by marke t cond i t ions tha t are genera l l y supp ly-const ra ined . Compar ison o f the gas consumpt ion vo lumes be tween the Base and Delay Cases a lso ind ica tes tha t there wou ld be some demand reduc t ion , espec ia l l y in the indus t r ia l sec tor . However , the reduc t ion in gas use because o f e i ther subst i tu t ion or conservat ion wou ld no t by any means be su f f i c ient to p revent consumers ’ gas b i l l s f rom r is ing s ign i f i can t ly because o f h igher burner - t ip p r i ces. Fur ther , the ana lys is ind ica tes tha t the impact wou ld not be con f ined to the ma jor gas-produc ing prov inces. I n f a c t , i t s u g g e s t s t h a t O n t a r i o c o n s u m e r s w o u l d h a v e t o b e a r a s

m u c h a s o n e - t h i r d t h e c o s t i n c r e a s e t h r o u g h 2 0 0 6 - 2 0 2 5 f o l l o w e d b y g a s c o n s u m e r s i n A l b e r t a a n d B r i t i s h C o l u m b i a w i t h 3 5 p e r c e n t a n d

1 3 p e r c e n t o f t h e b u r d e n , r e s p e c t i v e l y . The remain ing 19 percen t o f the impac t wou ld fa l l on consumers in Quebec, Saska tchewan, the Mar i t imes and Man i toba – in that order . The resu l ts can be summar ized as fo l lows:

• Pr ices a t AECO (A lber ta ) and Hunt ingdon/Sumas (South BC) market hubs average about 15 percent h igher in the De lay Case than in the Base Case through the 2006-2025 per iod in cur ren t do l la r te rms. S imi la r ly , p r i ces a t Dawn (Ontar io ) market hub are approx imate ly 13 percen t h igher in the De lay Case.

• Higher marke t hub pr i ces resu l t i n h igher burner - t ip pr i ces for Canad ian res iden t ia l , commerc ia l and indus t r ia l gas consumers and the h igher pr i ces dampen demand somewhat as consumers e i ther cu tback the i r consumpt ion o f energy fo r budget reasons ( inc lud ing the e f fec ts o f increased conserva t ion and improved u t i l i za t ion e f f i c ienc ies) o r sh i f t f rom gas to o ther energy sources . The dec l ine in Canad ian gas consumpt ion through the forecas t per iod i s g rea tes t in the indus t r ia l sector where gas consumed is es t imated to d rop by 1 ,410 Bc f o r 3 .3 percen t . The dec l ine in gas use in the commerc ia l sec tor i s 215 Bc f or 2 .2 percen t . In the res iden t ia l sec tor , where gas demand is no t as p r ice e las t i c as in the two o ther sec tors , gas consumpt ion dec l ines by on ly 1 .0 percen t . To ta l Canad ian res iden t ia l , commerc ia l and indus t r ia l gas demand is 1 ,769 Bc f less through the 2005-2020 per iod , o r 2 .6 percen t on average.

• The resu l ts , summar ized in the fo l low ing tab le , sugges t tha t the cos t to

Canad ians cou ld be as much $57 .7 b i l l i on over the 2006-2025 per iod in cons tan t 2005 $ terms.

The impac ts f rom a two-year de lay in const ruc t ion o f new p ipe l ine in f ras t ructure in Nor th Amer ica are fe l t mos t l y in A lber ta and Ontar io . The inc rease in the cost o f gas to consumers in these two prov inces r i ses by $20 .2 b i l l i on (2005 do l la rs) and $19 .1 b i l l i on , respec t i ve ly . In A lber ta the l ions ’ share o f the impac t fa l l s on the indus t r ia l sec to r . The s i tua t ion i s qu i te d i f fe ren t in Ontar io where a lmos t fo r ty percen t o f tha t impac t is on res iden t ia l gas consumers . In fac t , the Ontar io res iden t ia l sec to r su f fe rs a $7 .8 b i l l i on cos t increase through the forecast per iod o r about ha l f o f the h i t taken by the res iden t ia l sec tor in Canada.

The Cost of Delay in Natural Gas Infrastructure Investment2006-2025

(Millions of 2005 Dollars; Provincial Shares in Brackets)

Residential Commercial Industrial TotalBritish Columbia 2,056.2 (13.1) 1,403.6 (14.7) 3,914.7 (12.0) 7,374.5 (12.8)Alberta 3,804.0 (24.3) 1,510.9 (15.9) 14,903.8 (45.8) 20,218.7 (35.0)Saskatchewan 943.4 (6.0) 475.9 (5.0) 1,524.4 (4.7) 2,943.8 (5.1)Manitoba 479.3 (3.1) 681.5 (7.2) 406.4 (1.2) 1,567.2 (2.7)Ontario 7,764.1 (49.6) 3,988.0 (41.8) 7,437.0 (22.9) 19,189.1 (33.2)Quebec 619.4 (4.0) 1,471.5 (15.4) 2,379.6 (7.3) 4,470.5 (7.7)Maritimes 0.0 (0.0) 0.0 (0.0) 1,978.2 (6.1) 1,978.2 (3.4)

Canada 15,666.5 9,531.4 32,544.1 57,742.0

C O N C L U S I O N T ime ly cons t ruc t ion o f p ipe l ine and s torage in f ras t ruc ture to connect new o i l and na tura l gas supp l ies to markets w i l l be c r i t i ca l to ensure Nor th Amer ica has adequate supp l ies o f energy .

P l a n n i n g , f i n a n c i n g a n d c o n s t r u c t i n g l a r g e p i p e l i n e p r o j e c t s i s c o m p l e x a n d i s f r a u g h t w i t h d e l a y s t h a t c a n a r i s e i n e n s u r i n g e c o n o m i c a l l y c o m p e t i t i v e f i s c a l c o n d i t i o n s , r e c e i v i n g r e g u l a t o r y

a p p r o v a l s a n d p e r m i t s a n d l o g i s t i c a l c o n s t r a i n t s d u r i n g c o n s t r u c t i o n . Bes ides impac t ing the economic compet i t i veness o f the these pro jects , de lays in the inves tment in and cons t ruc t ion o f new t ranspor ta t ion in f ras t ructure w i l l pu t add i t iona l p ressure on the supp ly -demand ba lance in Nor th Amer ica resu l t ing in genera l l y h igher energy cos ts to consumers and w i l l de lay the s ign i f i can t economic benef i t s tha t these p ro jec ts o f fe r to Canada and Canad ians. The two s tud ies under take by CEPA serve to quant i f y the economic benef i t s that resu l t f rom p ipe l ine investment and to i l l us t ra te the po ten t ia l l y very s ign i f i can t costs to Canad ian res iden t ia l , commerc ia l and indus t r ia l consumers tha t wou ld resu l t f rom the t ime ly cons t ruc t ion o f new p ipe l ine in f ras t ructure in Nor th Amer ica . The resu l ts o f these s tud ies emphas ize the impor tance for governments to ensure t ime ly regu la tory rev iew and approva l o f new p ipe l ine in f ras t ructure p ro jec ts and to ensure tha t the f i sca l t reatment prov ides an a t t rac t i ve and compet i t i ve inves tment c l imate .

A P P E N D I X 1 T h e E c o n o m i c I m p a c t s o f C o n s t r u c t i n g a n E n e r g y P i p e l i n e

I N T R O D U C T I O N The most recen t (2001) vers ion o f the S ta t i s t i cs Canada In te r reg iona l Inpu t /Output ( I /O) Mode l was used to fac i l i ta te the eva lua t ion o f the economic impact tha t cons t ruc t ion o f a ma jo r Canad ian p ipe l ine wou ld have throughout the count ry . Essent ia l l y , the I /O f ramework i s a data account ing s t ruc tu re tha t i s cons is ten t w i th the na t iona l income and expend i tu re sys tem o f accounts . Est imated expend i tu res necessary to cons t ruct and /or opera te the pro ject be ing assessed are a l loca ted to indus t r ia l sec to rs and to reg ions (prov inces and te r r i to r ies ) . Expend i tures requ i red to p roduce the requ i red goods and serv ices are a l loca ted in s im i la r fash ion . The s ta t i s t i ca l re la t ionsh ips embedded in the I /O f ramework are then used to es t imate the d i rec t , ind i rec t and induced impac ts o f cons t ruc t ion o f the pro jec t on GDP, income and employment . D i rec t impacts a re those der ived f rom employment and produc t ion genera ted by d i rec t p ro jec t expend i tures. Ind i rec t impacts a r i se f rom the ac t i v i t i es o f those f i rms and ind iv idua ls engaged in p rov id ing goods and serv ices to the bus inesses engaged in de l i ver ing the d i rec t requ i rements . Spend ing made poss ib le by the wages and sa la r ies earned by those employees who are invo lved , e i ther d i rec t l y or ind i rec t l y , in the produc t ion o f the goods and serv ices requ i red by the pro jec t are re fer red to as “ induced” . Induced spend ing a lso impac ts the demand for commodi t ies and the i r p roduc t ion . A l l do l la r va lues used in the ana lys is were in te rms o f 2005 cons tant do l la rs . No ad jus tment to accommodate in f la t ion was needed because the I /O Mode l e lements are s t ruc tura l coe f f i c ien ts that ra ther than income or expend i ture components . For the I /O ana lys is a hypo the t i ca l na tura l gas p ipe l ine was assumed to be cons t ruc ted . 3 The ana lys is focused on ly on the p ipe l ine cons t ruc t ion phase because the economic impac ts f lowing f rom the opera t ion o f a la rge gas p ipe l ine are genera l ly very sma l l . The reason fo r th is i s that l i t t l e manpower and few mater ia ls are requ i red for rout ine opera t ion and ma in tenance purposes. The fo l low ing phys ica l charac ter i s t i cs o f the hypothet i ca l p ipe l ine were assumed:

• A 1000 k i lometer 36- inch ma in l i ne , ha l f i n A lber ta and ha l f i n BC, w i th a des ign pressure o f 8 ,000 kPa.

• Twenty la tera ls o f average 15 k i lometer leng th bu i l t o f 16- inch p ipe w i th a

des ign pressure o f 9930 kPa (10 la te ra ls in each p rov ince) .

• Five 28 MW compressor s ta t ions, th ree in A lber ta and two in Br i t i sh Co lumbia .

• One meter ing fac i l i t y a t the de l i ve ry po in t and twenty meter ing fac i l i t i es a t

communi ty po in ts - - ten in A lber ta and ten in Br i t ish Co lumbia .

3 S i m i l a r a n a l y s i s c o u l d , o f c o u r s e , b e u n d e r t a k e n i n r e l a t i o n t o a n o i l o r g a s l i q u i d s p i p e l i n e i n w h i c h c a s e t h e r e s u l t s w o u l d d i f f e r s o m e w h a t b e c a u s e o f t h e d i f f e r e n t c o s t c o m p o s i t i o n . F o r e x a m p l e , a n o i l o r r e f i n e d o i l p r o d u c t s p i p e l i n e w o u l d r e q u i r e m o r e p o w e r f u l p u m p i n g d e v i c e s b u t t h e l i n e p i p e s p e c i f i c a t i o n s w o u l d b e d i f f e r e n t b e c a u s e o f t h e d i f f e r e n c e i n p r e s s u r e r e q u i r e m e n t s .

I t was assumed that there wou ld be su f f i c ient p lann ing and coord ina t ion to a l low the p ipe l ine to be cons t ruc ted in a s ing le year . 4 I t was fu r ther assumed tha t the i so la ted method fo r r i ver c ross ings wou ld be used and tha t hor izon ta l d i rec t iona l d r i l l i ng techno logy wou ld be used to t raverse ma jo r r i ve rs . Bedrock was assumed to be encountered in the Br i t i sh Co lumbia sec t ion requ i r ing some b last ing and sand padd ing . The f i ve compressors wou ld be spaced approx imate ly two hundred k i lometers apar t . In add i t ion i t was assumed that an ex is t ing p ipe l ine gas con t ro l cen ter wou ld be used, obv ia t ing the need to cons t ruc t a new fac i l i t y . . The expend i tu res on goods and serv ices deemed necessary to cons t ruc t the assumed 1000 k i lometer th i r t y -s ix inch d iameter p ipe l ine (and 300 k i lometers o f s ix teen- inch la tera ls) are summar ized in Tab le 1 on the fo l low ing page. 5 To act i va te the I /O Mode l ana lys is the mater ia ls cos t components were b roken down fur ther , in to components match ing var ious o f the 717 commodi ty cos t components tha t dr i ve the Model . These inc lude, fo r example , the es t imated cos t o f va lves, compressors , p ipe , p ipe coa t ings, meter ing and con t ro l equ ipment , concre te produc ts , w i r ing , too ls , and o ther mater ia ls and serv ices, inc lud ing cons t ruc t ion expenses. The ma jor cos t components a re the cos t o f the l ine p ipe and the cons t ruc t ion costs . As ind ica ted by the da ta p rov ided in Tab le 1 , the assumed cap i ta l cost o f the hypothe t i ca l gas p ipe l ine was $1 .524 b i l l i on . Th is inc ludes a 10 percen t “cont ingency” fac tor . GST and the 7 percen t BC prov inc ia l sa les tax were accounted for (added) w i th in the I /O f ramework and a re no t shown in the tab le . Owner overhead cos ts , p ro jec t deve lopment cos ts (a t the conceptua l s tage) , and an a l lowance for funds used dur ing cons t ruc t ion (AFUDC) were exc luded as were cos ts o f poss ib le land c la im and t imber sa lvage costs . No cos ts in re la t ion to the se t t ing up and opera t ion for cons t ruc t ion camps were inc luded because i t was assumed that workers wou ld be ab le to s tay in mote ls and s im i la r renta l accommodat ions . 6

4 I f t h e e x p e n d i t u r e s w e r e s p r e a d o v e r a t w o - y e a r p e r i o d t h e t o t a l i m p a c t s o n G D P , e m p l o y m e n t a n d i n c o m e w o u l d b e t h e s a m e 5 T h e d o l l a r a m o u n t s u s e d w e r e b a s e d o n r e c e n t c o n s t r u c t i o n e x p e r i e n c e s o f a n d p r i c e q u o t a t i o n s o b t a i n e d b y m a j o r C a n a d i a n p i p e l i n e c o m p a n i e s t h a t b e l o n g t o C E P A . 6 W i t h G S T , t h e B . C . p r o v i n c i a l s a l e s t a x a n d a 2 p e r c e n t A F D U C i n c l u d e d t h e c o s t w o u l d e x c e e d $ 1 . 6 b i l l i o n .

T A B L E 1

Estimated Capital Cost of Assumed Gas Pipeline*

British Alberta Columbia Total

Materials $330,478,863 $309,578,355 $640,057,2180

Management & Coordination 16,441,700 14,236,200 30,677,9000

Construction Costs 321,957,900 467,712,300 789,670,2000

Engineering 10,778,900 9,428,100 20,207,0000

Land 15,946,700 12,498,200 28,444,9000

Linepack (natural gas) 15,087,940 0 15,087,940

Total $710,692,003 $813,453,155 $1,524,145,158

*Ex. B.C. sales tax, GST and AFUDC

The Br i t i sh Co lumbia por t ion o f const ruc t ion cos ts is g rea ter than the A lber ta por t ion because o f the d i f fe rences in te r ra in tha t were assumed. The cos t o f the natura l gas requ i red to f i l l the p ipe l ine ( i .e . l i nepack) was assumed to be $6 /GJ. The cos ts o f ma jor mater ia ls , such as p ipe and coa t ings, were based on recen t quo ta t ions p rov ided by ma jor supp l ie rs . O ther mater ia ls cos ts such as ma in l ine va lve assembles , p ig launchers and rece ivers , and cathod ic pro tec t ion were based on the cos t o f such purchases in recent years esca la ted to 2005 do l la rs . Sh ipp ing cos ts were prov ided by CNR. The const ruct ion cos t es t imat ion p rocess assumed the u t i l i za t ion o f t yp ica l labour and equ ipment w i th const ruc t ion-crew makeup as per recen t exper ience . Cons t ruct ion was assumed to be car r ied ou t by un ion con t racto rs . Labour ra tes were based on in format ion ob ta ined f rom the p ipe l ine Cont ractors Assoc ia t ion o f Canada. The cost o f t ranspor t ing equ ipment , d iese l fue l and gaso l ine were inc luded w i th cons t ruct ion cos ts ra ther than be ing broken ou t separa te ly and inser ted in I /O Mode l expend i ture ca tegor ies . Eng ineer ing and pro jec t management cos ts were based on recent exper ience and inc lude the survey and cer ta in inspec t ion costs .

Direct and Indirect Impacts Tab les 2(a) and 2(b) summar ize the d i rec t and ind i rec t impac ts o f the expend i tures requ i red to cons t ruc t the 1 ,000 k i lometer p ipe l ine on the nat iona l GDP. The d i rec t impac t i s es t imated to be $441 mi l l i on and the ind i rec t impac t , $498.5 mi l l i on , fo r a combined e f fec t on GDP o f $939.9 mi l l ion . The d i rec t impac ts are , as expec ted , concent ra ted in A lber ta and Br i t i sh Co lumbia where the combined impac t i s about $414 mi l l i on o r approx imate ly 94 percent o f the to ta l . The impac t on GDP is g rea ter in Br i t i sh Columbia than in A lber ta because o f g rea ter const ruc t ion expend i tures on account o f more d i f f i cu l t te r ra in . A s ign i f i can t por t ion o f the ind i rec t impac ts (over $100 mi l l i on o r 21 percent o f the to ta l ) occur in Ontar io and Quebec where var ious goods requ i red for the pro jec t are manufac tured. T A B L E 2 ( A )

Impacts on GDP at Basic Prices By Region (Millions of Constant 2005 Dollars)

Direct Indirect Total

Atlantic 0.2 2.5 2.7Quebec 4.0 24.3 28.3Ontario 15.5 80.2 95.7

Man. & Sask. 6.9 22.2 29.1Alberta 202.6 212.0 414.6

British Columbia 211.7 155.9 367.6Other 0.1 1.4 1.5

Canada 441.0 498.5 939.5

T A B L E 2 ( B )

Impacts on GDP at Basic Prices By Region (Percent Shares)

Direct Indirect Total

Atlantic 0.0% 0.5% 0.3%Quebec 0.9% 4.9% 3.0%Ontario 3.5% 16.1% 10.2%

Man. & Sask. 1.6% 4.5% 3.1%Alberta 45.9% 42.5% 44.1%

British Columbia 48.0% 31.3% 39.1%Other 0.0% 0.3% 0.2%

Canada 100.0% 100.0% 100.0%

Tab les 3(a) and 3(b) summar ize the impac ts on labour income. As w i th the impac t on GDP, the l ion ’s share o f the bo th the d i rec t and ind i rec t impac ts fa l l i n A lber ta and Br i t i sh Co lumbia w i th the impac t on income somewhat grea ter in B.C . because o f the g rea ter cons t ruc t ion cos ts . However , more than $85 mi l l i on in ind i rec t labour income (more than 25 percen t o f the to ta l ) i s generated in Ontar io , Quebec and o ther reg ions o f the count ry because o f the requ i rements for goods and serv ices ar i s ing f rom cons t ruc t ion o f the p ipe l ine . T A B L E 3 ( A )

Impacts on Labour Income by Region (Millions of Constant 2005 Dollars)

Direct Indirect Total

Atlantic 0.1 1.3 1.4Quebec 2.4 15.3 17.7Ontario 10.4 54.9 65.3

Man. & Sask. 5.7 12.8 18.5Alberta 158.1 133.7 291.8

British Columbia 173.9 111.4 285.3Other 0.0 0.9 0.9

Canada 350.6 330.3 680.9

T A B L E 3 ( B )

Impacts on Labour Income by Region (Percent Shares)

Direct Indirect Total

Atlantic 0.0% 0.4% 0.2%Quebec 0.7% 4.6% 2.6%Ontario 3.0% 16.6% 9.6%

Man. & Sask. 1.6% 3.9% 2.7%Alberta 45.1% 40.5% 42.9%

British Columbia 49.6% 33.7% 41.9%Other 0.0% 0.3% 0.1%

Canada 100.0% 100.0% 100.0%

As ant i c ipa ted , mos t o f the d i rec t employment in re la t ion to const ruc t ion o f the p ipe l ine occurs in A lber ta and Br i t ish Co lumbia . As ind ica ted in Tab le 4 (a) an es t imated 5 ,223 jobs are c reated in A lber ta and B .C. d i rec t l y , and another 5 ,258 jobs a re created in those prov inces ind i rec t l y - - fo r a to ta l o f 10 ,481 jobs - - dur ing the cons t ruc t ion phase. However 1 ,894 “ ind i rec t ” jobs a re created th roughout o ther par ts o f Canada, ma in ly in Ontar io , Quebec, Man i toba and Saska tchewan where a s ign i f i can t 26 percen t o f the ind i rec t employment e f fec ts occur . T A B L E 4 ( A )

Impacts on Employment (Jobs) by Region

Direct Indirect Total

Atlantic 2 33 35Quebec 50 398 448Ontario 194 1,129 1,323

Man. & Sask. 62 314 376Alberta 2,508 2,694 5,202

British Columbia 2,715 2,564 5,279Other 0 20 20

Canada 5,531 7,152 12,683

T A B L E 4 ( B )

Impacts on Employment (Jobs) By Region (Percent Shares)

Direct Indirect Total

Atlantic 0.0% 0.5% 0.3%Quebec 0.9% 5.6% 3.5%Ontario 3.5% 15.8% 10.4%

Man. & Sask. 1.1% 4.4% 3.0%Alberta 45.3% 37.7% 41.0%

British Columbia 49.1% 35.9% 41.6%Other 0.0% 0.3% 0.2%

Canada 100.0% 100.0% 100.0%

Indirect Tax Revenues As summar ized by Tab le 5 (a) , cons t ruc t ion o f the p ipe l ine wou ld genera te more than $42 mi l l i on in ind i rec t tax revenues for a l l governments . The GST and the BC prov inc ia l tax account fo r most o f the ind ica ted $34 mi l l i on o f GST, PST and HST revenues. Federa l and prov inc ia l gaso l ine taxes are the ma in source o f the rema in ing revenues. T A B L E 5 ( A )

Tax Revenues Generated by Pipeline Project (Thousands of Constant 2005 Dollars)

Federal Provincial Municipal Total

Gasoline 3,088 4,809 0 7,897

GST, PST & HST 8,002 26,426 14 34,442

Excise and Duty 37 137 0 174

Total 11,126 31,372 14 42,512

Tab le 5(b ) prov ides a breakdown o f the prov inc ia l ind i rec t tax revenues ind ica ted in Tab le 5(a ) . Br i t i sh Co lumbia wou ld rece ive about 85 percen t o f the $31.4 mi l l i on to ta l revenue because ha l f o f the p ipe l ine cons t ruc t ion ac t i v i t y i s assumed to take p lace in tha t prov ince and A lber ta does no t have a p rov inc ia l sa les tax . Ontar io and A lber ta wou ld reap about $1.9 mi l l i on and 1 .7 mi l l i on , respec t i ve ly .

T A B L E 5 ( B )

Provincial Indirect Taxes Generated by Pipeline Project (Thousands of Constant 2005 Dollars)

Atlantic Québec Ontario Man. & Sask.

Alberta B. C. Terri-tories Total

Provincial gallon tax 0.2 0.8 4.0 0.0 0.0 0.0 0.2 5.2 Provincial trading profits 0.8 2.8 8.4 11.6 54.6 53.1 0.6 131.8 Provincial gas tax 29.1 237.6 569.4 236.5 1,579.6 2,144.8 12.2 4,809.2 Provincial amusement tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 P.S.T 2.4 115.7 1,345.9 340.6 39.7 24,576.7 0.1 26,421.1 H.S.T 4.8 0.0 0.0 0.0 0.0 0.0 0.0 4.8 Total 37.3 356.9 1,927.7 588.7 1,673.8 26,774.6 13.1 31,372.1

Induced Impacts The Sta t i s t i cs Canada Income Outpu t Mode l f ramework was u t i l i zed to es t imate the “ induced” impac ts that the d i rec t and ind i rec t labour income f low ing f rom cons t ruc t ion o f the p ipe l ine cou ld be expec ted to have on GDP, income and employment because o f spend ing o f the d isposab le por t ion o f such income on goods and serv ices . The I /O Mode l ana lys is was rest r i c ted to A lber ta and Br i t i sh Co lumbia where 85 percen t o f the to ta l labour income was genera ted . 7 8

U t i l i z ing the approach descr ibed in foo tno te 8 , the induced impac ts occur ing in A lber ta /Br i t ish Co lumbia (combined) were es t imated to be as fo l lows :

• GDP: $ 255.3 mi l l i on

• Employment : 3 ,996 jobs

• Income: $148.9 mi l l i on Adopt ing the approach sugges ted in foo tnote 7 to approx imate the induced e f fec ts on the economy in the “Rest o f Canada” y ie lded the es t imates o f the induced impac ts in the ex-A lber ta /B .C. par t o f Canada tha t are con ta ined in Tab le 6 on the fo l low ing page. Th is tab le p rov ides a summary o f the d i rec t , ind i rec t and induced impac ts o f cons t ruc t ion o f the assumed 1 ,000 k i lometer natu ra l gas p ipe l ine on GDP, labour income and employment .

7 S e e T a b l e 3 ( a ) a n d 3 ( b ) . T h i s a p p r o a c h w a s t a k e n b e c a u s e t h e s h a r e o f l a b o u r i n c o m e g e n e r a t e d i n t h e r e s t o f C a n a d a w a s r e l a t i v e l y s m a l l . A s a r o u g h a p p r o x i m a t i o n o f t h e C a n a d a - w i d e i n d u c e d e f f e c t s , t h e A l b e r t a / B r i t i s h C o l u m b i a r e s u l t s d i s c u s s e d i n t h i s s e c t i o n c o u l d b e i n f l a t e d b y 1 5 p e r c e n t . A m o r e s o p h i s t i c a t e d a p p r o a c h w o u l d b e t o r u n t h e I / O M o d e l s e p a r a t e l y f o r e a c h o f t h e A t l a n t i c , Q u e b e c , O n t a r i o a n d M a n i t o b a - S a s k a t c h e w a n r e g i o n s . H o w e v e r , g i v e n t h a t t h e s h a r e o f t h e d i r e c t a n d i n d i r e c t i m p a c t s i n t h e s e r e g i o n s c o m b i n e d i s s m a l l t h e o v e r a l l r e s u l t s a r e n o t l i k e l y t o v a r y m u c h . 8 T h e I / O f r a m e w o r k w a s u s e d t o a s s e s s t h e i m p a c t o f $ 1 0 0 m i l l i o n i n c o n s u m e r e x p e n d i t u r e s o c c u r r i n g i n e a c h o f A l b e r t a a n d B . C . T h e i m p l i e d i n d u c e d i m p a c t s o n G D P , e m p l o y m e n t a n d i n c o m e w e r e t h e n s c a l e d i n a c c o r d a n c e w i t h t h e r a t i o o f t w o - t h i r d s ( t h e p o r t i o n a s s u m e d t o b e “ s p e n t ” ) o f t h e c o m b i n e d f i r s t - r o u n d l a b o u r i n c o m e i m p a c t t o $ 1 0 0 m i l l i o n . T h e s c a l i n g f a c t o r u s e d w a s 1 . 9 2 3 .

T A B L E 6

The Impacts of Pipeline Construction

GDP -- Millions of 2005 Constant DollarsDirect Indirect Induced Total

Alberta and B.C. 414.3 367.9 255.3 1,037.5

Rest of Canada 26.7 130.6 45.1 202.4

Canada 441.0 498.5 300.4 1,239.9

Labour Income -- Millions of 2005 Constant DollarsDirect Indirect Induced Total

Alberta and B.C. 332.0 245.1 148.9 726.0

Rest of Canada 18.6 85.2 26.3 130.1

Canada 350.6 330.3 175.2 856.1

Employment (Jobs) `Direct Indirect Induced Total

Alberta and B.C. 5,223 5,258 3,996 14,477

Rest of Canada 308 1,894 705 2,907

Canada 5,531 7,152 4,701 17,384

The overa l l impact on GDP wou ld be in the o rder o f $1 .2 b i l l i on o f wh ich $202 mi l l i on wou ld fa l l ou ts ide o f A lber ta and Br i t i sh Co lumbia . $856 mi l l i on in labour income wou ld be genera ted inc lud ing $130 mi l l i on in the res t o f the res t o f the count ry bu t ma in ly in Ontar io . The employment impac t would be tan tamount to 17,384 jobs inc lud ing 2 ,907 in reg ions o ther than A lber ta and Br i t i sh Co lumbia . The ex A lber ta /Br i t i sh Co lumbia impac t wou ld fa l l ma in ly in Ontar io but s ign i f i cant numbers o f jobs cou ld be expected to occur in Quebec, Saska tchewan and Man i toba.

A P P E N D I X 2 T h e C o s t t o C a n a d i a n C o n s u m e r s i n D e l a y s i n C o n s t r u c t i o n

o f E n e r g y T r a n s p o r t a t i o n I n f r a s t r u c t u r e

P R E A M B L E Nor th Amer ica i s enter ing a per iod o f much t igh te r o i l and na tura l gas supp ly and demand ba lances .

M e e t i n g t h e f u t u r e s u p p l y n e e d s i s d r i v i n g s i g n i f i c a n t n e w i n v e s t m e n t i n n o n - t r a d i t i o n a l r e s o u r c e d e v e l o p m e n t i n c l u d i n g o i l s a n d s a n d

h e a v y o i l s , A r c t i c n a t u r a l g a s , c o a l b e d m e t h a n e , o f f s h o r e o i l a n d n a t u r a l g a s a n d i m p o r t e d l i q u e f i e d n a t u r a l g a s .

Much o f these resources a re located in a reas where there i s l i t t l e o r no ex is t ing t ransmiss ion and s torage in f rast ruc tu re or where the ex is t ing in f ras t ruc tu re i s opera t ing a t o r near capac i ty to serve ex is t ing supp ly . T ime ly investment in and cons t ruc t ion o f p ipe l ine and s torage in f rast ruc ture to connect these new supp l ies to marke ts w i l l be c r i t i ca l to ensure Nor th Amer ica has adequate supp l ies o f energy. P lann ing , f inanc ing and cons t ruc t ing la rge p ipe l ine p ro jec ts wh ich can range in s ize f rom hundreds o f m i l l ions do l la rs to ten to twenty b i l l i on do l la rs i s complex and i s f raught w i th de lays tha t can a r i se in ensur ing economica l l y compet i t i ve f i sca l cond i t ions, rece iv ing regu la tory approva ls and permi ts and log is t i ca l cons t ra in ts dur ing const ruc t ion. Bes ides impact ing the economic compet i t i veness o f the these p ro jec ts , de lays in the inves tment in and cons t ruc t ion o f new t ranspor ta t ion in f ras t ruc ture w i l l pu t add i t iona l pressure on the supp ly-demand ba lance in Nor th Amer ica resu l t ing in genera l l y h igher energy cos ts to consumers . As an i l l us t ra t i ve example o f the impac ts on Canad ian consumers o f the impor tance o f t ime ly deve lopment o f o i l and na tu ra l gas t ransmiss ion and s to rage in f ras t ructure , CEPA commiss ioned Angev ine Economic Consu l t ing to extend the methodo logy u t i l i zed by Energy and Env i ronmenta l Ana lys is Inc . (EEA) in the i r Ju ly 2004 INGAA Foundat ion, Inc . s tudy An Updated Assessment o f P ipe l ine and Storage In f rast ruc ture for the Nor th Amer ican Gas Market : Adverse Consequences o f De lays in the Const ruc t ion o f Na tu ra l Gas In f ras t ructure . The Canad ian s tudy es t imates the cos t to Canad ian res iden t ia l , commerc ia l and indus t r ia l consumers resu l t ing f rom a two-year de lay in the cons t ruc t ion o f pro jec ted na tura l gas p ipe l ine , l i que f ied na tura l gas and na tura l gas s to rage in f ras t ructure requ i red to meet fo recas t demand in the per iod f rom 2005 – 2025. S imi la r ana lys is cou ld be under taken to i l l us t ra te the impact to consumers in the case o f de lays in cons t ruc t ion o f o i l p ipe l ine and s torage in f ras t ructure .

I N T R O D U C T I O N In Ju ly 2004 Energy and Env i ronmenta l Ana lys is Inc . (EEA) o f Ar l ing ton , V i rg in ia under took a s tudy o f the consequences o f de lays in p ipe l ine in f ras t ructure for the INGAA Foundat ion , Inc . ( INGAA Study) . Essent ia l ly , EEA compared the resu l ts o f a Base Case s imu la t ion under taken w i th the i r Gas Mode l Forecast ing and Data Sys tem (GMDFS) w i th the resu l ts o f a De lay Case s imu la t ion for wh ich i t was assumed tha t a l l p ipe l ine and LNG impor t te rmina l fac i l i t y p ro jec ts not a l ready under cons t ruc t ion wou ld be de layed by two fu l l years in compar ison to the Base Case. The marke t -c lear ing spot gas pr i ce forecas ts tha t were generated to 2020 in each case were compared and the pr i ce impac ts o f the assumed de lays in cons t ruc t ion assessed. Impacts on the cos t o f gas consumed in each o f the res ident ia l , commerc ia l and indus t r ia l sec to rs were a lso eva lua ted. E E A c o n c l u d e d t h a t a t w o - y e a r c o n s t r u c t i o n d e l a y w o u l d c o s t U . S . c o n s u m e r s i n t h o s e s e c t o r s i n e x c e s s o f $ 1 3 0 b i l l i o n ( i n c o n s t a n t

2 0 0 3 d o l l a r s ) t h r o u g h t h e 2 0 0 5 t o 2 0 2 0 p e r i o d . The s tudy repor ted here , under taken for the Canad ian Energy P ipe l ine Assoc ia t ion (CEPA) , adopted essent ia l l y the same methodo logy as the EEA INGAA study and used the same mode l f ramework to assess the impac t on Canad ian gas consumers f rom assumed de lays in in f ras t ruc tu re cons t ruc t ion . The CEPA s tudy embod ies cur ren t perspec t i ves regard ing the ou t look for na tura l gas in f ras t ructure p ro jec ts inc lud ing LNG termina ls and re la ted t ranspor ta t ion fac i l i t i es . The Base Case gas p r i ce and gas consumpt ion vo lume da ta were down loaded f rom EEA’s September 2005 Base Case. The Delay Case outpu t was ob ta ined f rom a mode l run under taken spec i f i ca l l y fo r CEPA in October 2005 tha t incorpora ted var ia t ions f rom the Base Case assumpt ions s im i la r to the changes tha t EEA made fo r the i r 2004 INGAA Foundat ion De lay Case.

K E Y M O D E L A S S U M P T I O N S 1. The Main Drivers The key d r i ve rs o f the GMDFS f ramework are the p r i ces o f o i l and coa l ( the ma in fue ls that compete w i th na tu ra l gas) and the ra tes o f economic and indust r ia l p roduc t ion growth . For bo th the Base Case and the De lay Case the rea l (2004 do l la r ) re f iner c rude o i l acqu is i t ion cos t was assumed to average U.S.$50.17 /bb l in 2005, to fa l l on ly to U .S . $46 .74 /bb l by 2010, and then gradua l ly dec l ine to U.S.$41 .76 /bb l in 2025. 9 The rea l p r i ce o f coa l was assumed to inc rease by 0 .09 percent per year f rom 2004 to 2025, reach ing U.S.$1 .39 /MMBtu in 2025 compared w i th $U.S. 1 .37 /MMBtu in 2004.

R e a l U . S . G D P a n d U . S . I n d u s t r i a l p r o d u c t i o n w e r e e a c h a s s u m e d t o g r o w b y 2 . 8 p e r c e n t p e r y e a r i n b o t h c a s e s . R e a l C a n a d i a n

G D P g r o w s b y 2 . 2 p e r c e n t . The pr ice o f gas i s de te rmined by the mode l sys tem. The GMDFS sys tem so lves fo r the marg ina l o r marke t -c lear ing pr i ces each month tha t s imu l taneous ly ba lance supp ly and demand in each reg iona l market . 2 . Natural Gas Infrastructure In EEA’s Base Case the amount o f add i t iona l in ter reg iona l p ipe l ine capac i ty bu i l t i n the per iod to 2025 i s subs tan t ia l . Beyond the next few years , however , i t i s d i f f i cu l t to pred ic t w i th cer ta in ty p rec ise ly wh ich spec i f i c p ipe l ine capac i ty expans ions and new p ipe l ine p ro ject cons t ruct ion w i l l occur . Genera l p ro jec t ions o f new capac i ty add i t ions were made by EEA in accordance w i th bas is deve lopments be tween ad jacen t marke t pr i ce cen ters . Most o f the new capac i ty w i l l be in re la t ion to the need to t ie new supp ly areas , inc lud ing the Mackenz ie De l ta and the A laskan Nor th S lope , to marke ts . In add i t ion , p ipe l ine in f ras t ructure w i l l be needed to accommodate increased LNG impor ts . EEA assumed tha t f rom 2005 to 2025 approx imate ly 4 .5 Bc fd o f add i t iona l gas p ipe l ine capac i ty w i l l be needed ou t o f Western Canada. Th is i s less than the forecas t 6 .0 Bc fd o f inc rementa l gas seen en ter ing A lber ta and Br i t i sh Co lumbia f rom the nor th . The d i f fe rence i s because o f the cur rent excess capac i ty , the out look for dec l in ing gas p roduc t ion in the Western Canada Sed imentary Bas in , and inc reas ing gas demand in A lber ta tha t i s ma in ly assoc ia ted w i th an t i c ipa ted requ i rements in re la t ion to expanded o i l sands b i tumen product ion and upgrad ing. EEA assumed tha t add i t iona l p ipe l ine in f ras t ruc ture wou ld be requ i red in re la t ion to an 8 Tc f increase in annua l Nor th Amer ican LNG impor t capac i ty th rough the forecas t per iod . I t was a lso assumed that add i t iona l gas t ranspor ta t ion capac i ty w i l l be needed ou t o f Eas tern Canada because o f increased o f fshore gas product ion ; ou t o f the Rock ies because o f expanded produc t ion , and out o f the deeper wate rs o f the Gu l f o f Mex ico for the same reason.

9 T h e a v e r a g e r e f i n e r a c q u i s i t i o n c o s t o f c r u d e o i l i s a p p r o x i m a t e l y 9 0 p e r c e n t o f t h e W T I c r u d e o i l p r i c e .

In the i r 2004 repor t to the INGAA Foundat ion EEA ind ica ted tha t , inc lud ing bo th reg iona l and in ter reg iona l p ipe l ines , the na tura l gas indus t ry w i l l need to ins ta l l more than 45 ,000 mi les o f p ipe to meet the g row ing demand for gas in Canada and the U.S. Lower 48 s ta tes . Of th is amount approx imate ly 35,000 mi les w i l l be new p ipe and the remainder , rep lacement p ipe . About 20 percent o f the new p ipe w i l l be assoc ia ted w i th t ranspor ta t ion needs in re la t ion to A laskan and Mackenz ie De l ta gas . The t im ing and vo lume assumpt ions w i th respec t to the Mackenz ie Gas P ipe l ine and an A laskan P ipe l ine were as fo l lows: BASE CASE Mackenz ie Gas P ipe l ine : 1 Bc fd throughput ra te commenc ing November 2010. The f i r s t fu l l year o f opera t ion i s 2011 . Throughput increases s low ly therea f ter , reach ing 1 .2 Bc fd , in 2016 and 1 .5 Bc fd in 2022.

A laska P ipe l ine : A 4 Bc fd throughput ra te i s assumed, commenc ing November 2014. The f i r s t fu l l year o f operat ion i s 2015. No increase in the f low ra te i s assumed to occur dur ing the forecast per iod . DELAY CASE In the De lay Case new or expanded in f ras t ructure needed to de l i ver gas f rom new produc ing reg ions and the nor thern f ron t ie r to the var ious reg iona l marke ts is no t pu t in p lace un t i l two years la ter than in the Base Case. The cons t ruct ion o f new LNG termina l fac i l i t i es and re la ted p ipe l ine in f ras t ruc tu re i s a lso de layed for two years excep t fo r the LNG fac i l i t i es p roposed fo r Quebec and the Mar i t imes tha t were no t de layed f rom the t im ing assumed in the Base Case. The expans ion o f capac i ty on Mar i t imes Nor theast P ipe l ine be ing p lanned to accommodate gas f rom LNG impor t fac i l i t i es in the Mar i t imes is no t de layed. The CrossTex p ipe l ine expans ion schedu led for January 2006 and expans ion o f compress ion on the Cheyenne p la ins p ipe l ine , tha t i s a lso schedu led fo r next January , are no t pos tponed in the de lay Case because ind ica t ions are tha t those p ro jec ts are a l ready underway and w i l l be comple ted on t ime. A l l o ther p ipe l ine and LNG pro jec ts assumed in the Base Case, inc lud ing the Mackenz ie Gas P ipe l ine , cons t ruc t ion o f a gas p ipe l ine f rom A laska , and the ramp-up o f LNG impor t fac i l i t i es in Lou is iana, Texas , and o ther loca t ions are assumed to be de layed by two years . 10

10 T h e d e t a i l e d L N G f a c i l i t y i n v e s t m e n t a s s u m p t i o n s a n d t i m i n g a r e p r o v i d e d i n A p p e n d i x A f o r b o t h c a s e s .

C O N S E Q U E N C E S O F I N F R A S T R U C T U R E D E L A Y S F O R C A N A D I A N G A S C O N S U M E R S 1. Price Impacts As a consequence o f the assumed na tura l gas in f ras t ruc ture cons t ruc t ion de lays h igher gas pr i ces are requ i red to ba lance supp ly and demand in the De lay Case. The pr i ce a t Henry Hub is o f ten used as a proxy for U .S. na tura l gas p r i ces . Accord ing to the EEA ana lys is a two-year de lay in p ipe l ine and LNG impor t fac i l i t y cons t ruc t ion wou ld increase the Henry Hub pr i ce by an average o f U .S .$1 .21 /MMBtu (14.6 percent ) dur ing the 2006-2025 per iod , $1.02 /MMBtu (16.5 percen t ) in constant 2004 do l la rs . As i l l us t ra ted by the fo l low ing f igure the pr ice e f fec t deve lops qu ick ly and las ts th roughout the f i r s t f i f teen years o f the twenty-year fo recas t per iod . On ly in 2017, the f i r s t fu l l year o f opera t ion o f the A laska P ipe l ine ( in the De lay case) do the Henry Hub pr ices in the De lay Case drop be low those in the Base Case.

Gas Prices at Henry Hub

0.00

2.00

4.00

6.00

8.00

10.00

12.00

20042005

20062007

20082009

20102011

20122013

20142015

20162017

20182019

20202021

20222023

20242025

2004

US$

/MM

Btu

Base Case Delay Case

Pr ices a t the key AECO, Southern B .C. (Hunt ingdon/Sumas) and Dawn Canad ian marke t hubs behave in a c lose ly s im i la r manner as i l l us t ra ted by the three fo l low ing f igures . 11

Gas Prices at the AECO Hub

0.00

2.00

4.00

6.00

8.00

10.00

12.00

20042005

20062007

20082009

20102011

20122013

20142015

20162017

20182019

20202021

20222023

20242025

2004

$/M

cf

Base Case Delay Case

Gas Prices at Huntingdon/Sumas

(South B.C.)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

20042005

20062007

20082009

20102011

20122013

20142015

20162017

20182019

20202021

20222023

20242025

2004

$/M

cf

Base Case Delay Case

11 I n t h e s e a n d o t h e r f i g u r e s a n d t a b l e s c o n t a i n i n g p r i c e s a t C a n a d i a n m a r k e t p o i n t s o r r e g i o n s , p r i c e s a r e i n a r e i n C a n a d i a n d o l l a r s .

.

Gas Prices at the Dawn Hub

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

20042005

20062007

20082009

20102011

20122013

20142015

20162017

20182019

20202021

20222023

20242025

2004

$/M

cf

Base Case Delay Case

As summar ized by the tab le be low, the pr i ce e f fec ts a t the AECO and South BC marke t hubs a re s l igh t l y s t ronger than tha t a t Henry Hub. In par t , th is i s due to the ra ther la rge impac t tha t gas f low ing in to A lber ta and B .C. f rom the nor thern f ront ie r has on pr i ces in A lber ta and B .C. However , as compar ison o f the Base Case and de lay Case resu l ts ind ica tes a de lay in the commencement o f these f lows wou ld have a very s ign i f ican t impac t on gas marke t p r i ces throughout Canada and no t jus t in the West . As shown in the tab le , p r i ces a t AECO and Hunt ingdon/Sumas average about 15 percen t h igher in the De lay Case than in the Base Case through the 2006-2025 per iod in cur rent do l la r te rms. S imi la r l y , p r i ces a t Dawn are approx imate ly 13 percen t h igher in the De lay Case. In rea l o r cons tan t do l la r te rms the p r i ce e f fec ts are s l igh t l y g rea ter .

Natural Gas Price Effects of a Two-year Delay In Pipeline and LNG Terminal Construction

(2006-2025)

Price PercentEEA Delay Increase Increase

Base Case Case $Cdn/Mcf in PriceAverage Nominal Prices at:

South BC 9.27 10.69 1.42 15.3

AECO 9.22 10.63 1.41 15.3

Dawn, Ont. 10.61 12.02 1.41 13.3

Average 2005 $ prices at:South BC 6.9 8.1 1.2 17.4

AECO 6.87 8.06 1.19 17.3

Dawn, Ont. 7.91 9.11 1.20 15.2

2. Consumption Volume Impacts Higher spo t marke t pr i ces resu l t i n h igher burner - t ip p r i ces for Canad ian res iden t ia l , commerc ia l and indus t r ia l gas consumers and the h igher pr i ces dampen demand somewhat as consumers e i ther cu tback the i r consumpt ion o f energy fo r budget reasons ( inc lud ing the e f fec ts o f inc reased conserva t ion and improved u t i l i za t ion e f f i c ienc ies) o r sh i f t f rom gas to o ther energy sources . H igher pr i ces a lso induce inc reased produc t ion bu t any supp ly improvements , even w i th the demand reduc t ions , a re not su f f i c ien t to p reven t h igher pr i ces f rom be ing requ i red to c lear the marke ts . L ike the pr i ce impacts tha t t r igger them, the reduc t ions in gas demand occur fa i r l y qu ick ly and con t inue through most o f the forecast per iod. Th is i s i l l us t ra ted by the fo l low ing f igure that compares the to ta l o f res iden t ia l , commerc ia l and indus t r ia l sec tor gas consumpt ion in the Base Case and De lay Case fo recas ts .

Impact of Infrastructure delays on Canadian Gas Consumption

2,000

2,250

2,500

2,750

3,000

3,250

3,500

3,750

4,000

20062007

20082009

20102011

20122013

20142015

20162017

20182019

20202021

20222023

20242025

Bcf

Base Case Delay Case

The fo l low ing tab le summar izes the impac ts o f in f ras t ruc tu re cons t ruc t ion de lays on the vo lumes o f gas consumed across the count ry . The dec l ine in Canadian gas consumpt ion th rough the forecas t per iod as a resu l t o f the assumed de lays in in f ras t ructure cons t ruc t ion i s g rea tes t in the indust r ia l sector where gas consumed is es t imated to d rop by 1 ,410 Bcf or 3 .3 percent . 12 The dec l ine in gas use in the commerc ia l sec tor i s 215 Bc f or 2 .2 percen t in the De lay Case compared w i th the Base Case pro ject ions. In the res iden t ia l sec tor , where gas demand is not as p r i ce e las t i c as in the two o ther sec tors , gas consumpt ion dec l ines by on ly 1 .0 percen t in the De lay Case. To ta l Canad ian res iden t ia l , commerc ia l and indus t r ia l gas demand is 1 ,769 Bc f less th rough the 2005-2020 per iod , o r 2 .6 percent on average, in the De lay Case than in the Base Case.

Reductions in Natural Gas Consumption During 2006-2025 Arising from Delays in Infrastructure Construction (Bcf, with % Change from Base Case in Brackets)

Residential Commercial Industrial TotalBritish Columbia 20.3 (2.1) 34.8 (2.3) 74.5 (1.9) 129.5 (1.7)Alberta 37.1 (3.5) 36.6 (2.4) 485.6 (2.8) 559.3 (2.5)Saskatchewan 8.8 (1.0) 11.1 (2.2) 104.2 (4.3) 124.1 (3.3)Manitoba 4.3 (1.0) 13.1 (2.2) 28.2 (3.9) 45.6 (2.6)Ontario 67.7 (0.9) 87.4 (2.1) 573.6 (4.6) 728.7 (3.1)Quebec 5.3 (0.9) 32.2 (2.1) 144.4 (4.3) 182.0 (2.6)Maritimes nil nil -0.7 (+1.0) -0.7 (+1.0)

Canada 143.4 (1.0) 215.2 (2.2) 1,409.9 (3.3) 1,768.6 (2.6)

12 I n c l u d e s g a s r e q u i r e m e n t s f o r p o w e r g e n e r a t i o n

The two fo l low ing tab les summar ize the gas consumpt ion impacts ar i s ing f rom h igher gas p r i ces in the De lay Case fo r the two la rgest gas-consuming p rov inces, Ontar io and A lber ta . 13 The 729 Bc f reduct ion in gas consumpt ion in Ontar io , in the De lay Case, represen ts 41 percen t o f the to ta l Canada-w ide reduc t ion . Th is i s greater than the reduct ion in gas consumpt ion ind ica ted for A lber ta where the es t imated 559 Bcf dec l ine in consumpt ion in the De lay Case represents 31 percent o f the d rop in Canada as a who le .

Ontario Natural Gas Consumption by Sector Changes from Base Case (Bcf)

Resid. Comm. Indust. Total2006 -0.12 -0.15 -11.11 -11.382007 -0.83 -1.06 -35.33 -37.222008 -2.24 -2.84 -66.52 -71.602009 -4.34 -5.46 -91.73 -101.532010 -6.53 -8.24 -52.90 -67.672011 -7.21 -9.14 -52.34 -68.692012 -7.62 -9.77 -49.99 -67.372013 -6.63 -8.58 -39.05 -54.262014 -5.34 -6.95 -40.85 -53.142015 -5.70 -7.41 -102.74 -115.862016 -7.71 -10.02 -107.22 -124.952017 -7.98 -10.45 5.12 -13.312018 -6.02 -7.96 34.82 20.832019 -3.44 -4.56 14.77 6.772020 0.71 0.92 1.31 2.942021 2.03 2.69 -15.45 -10.722022 0.47 0.64 -6.22 -5.102023 -0.09 -0.11 22.07 21.872024 0.18 0.23 20.56 20.972025 0.67 0.86 -0.82 0.71Total -67.73 -87.38 -573.61 -728.72

Alberta Natural Gas Consumption by Sector Changes from Base Case (Bcf)

Resid. Comm. Indust. Total2006 -0.05 -0.06 -8.43 -8.542007 -0.39 -0.41 -30.35 -31.142008 -1.05 -1.07 -56.49 -58.612009 -2.05 -2.05 -77.65 -81.752010 -3.08 -3.04 -42.30 -48.432011 -3.48 -3.42 -44.27 -51.172012 -3.82 -3.76 -39.34 -46.932013 -3.42 -3.36 -31.33 -38.112014 -2.84 -2.79 -35.05 -40.682015 -3.43 -3.36 -87.44 -94.232016 -4.99 -4.87 -80.61 -90.472017 -5.23 -5.13 8.26 -2.102018 -4.20 -4.15 22.86 14.512019 -2.31 -2.29 6.42 1.822020 0.66 0.64 -2.85 -1.552021 1.40 1.36 -14.82 -12.062022 0.44 0.41 -5.47 -4.612023 0.14 0.13 17.51 17.772024 0.24 0.23 16.85 17.322025 0.41 0.37 -1.11 -0.33Total -37.06 -36.62 -485.61 -559.29

13 C o n s u m p t i o n i m p a c t s u m m a r y t a b l e s f o r B r i t i s h C o l u m b i a , S a s k a t c h e w a n , M a n i t o b a , Q u e b e c a n d t h e M a r i t i m e s a r e p r e s e n t e d i n A p p e n d i x B

3. Impacts on the Cost of Gas Consumed The market -c lear ing spo t p r i ces pro jected by the EEA mode l s imu la t ion resu l ts fo r the respec t i ve Canad ian marke t hubs were combined w i th the gas consumpt ion vo lume resu l ts to est imate the impac ts o f in f ras t ruc tu re cons t ruc t ion de lays on consumers ’ gas costs . Th is invo lved mu l t ip ly ing the est imated marg ina l gas pr i ces by the sectora l gas consumpt ion vo lume es t imates f rom the respec t i ve GMDFS model runs to generate es t imates o f the cos t o f gas consumed in the Base Case and in the De lay Case. 14 Sub t rac t ing the cos t o f gas in the Base Case f rom the gas cos t in the De lay Case fo r each sec tor and reg ion prov ided es t imates o f the cos t impac ts tha t de layed in f ras t ructure inves tment wou ld have on res iden t ia l , commerc ia l and indust r ia l gas consumers by p rov ince . The resu l ts , summar ized in the fo l low ing tab le , sugges t tha t the cos t to Canad ians cou ld be as much $57.7 b i l l i on over the 2006-2025 per iod in cons tan t 2005 $ terms.

The Cost of Delay in Natural Gas Infrastructure Investment2006-2025

(Millions of 2005 Dollars; Provincial Shares in Brackets)

Residential Commercial Industrial TotalBritish Columbia 2,056.2 (13.1) 1,403.6 (14.7) 3,914.7 (12.0) 7,374.5 (12.8)Alberta 3,804.0 (24.3) 1,510.9 (15.9) 14,903.8 (45.8) 20,218.7 (35.0)Saskatchewan 943.4 (6.0) 475.9 (5.0) 1,524.4 (4.7) 2,943.8 (5.1)Manitoba 479.3 (3.1) 681.5 (7.2) 406.4 (1.2) 1,567.2 (2.7)Ontario 7,764.1 (49.6) 3,988.0 (41.8) 7,437.0 (22.9) 19,189.1 (33.2)Quebec 619.4 (4.0) 1,471.5 (15.4) 2,379.6 (7.3) 4,470.5 (7.7)Maritimes 0.0 (0.0) 0.0 (0.0) 1,978.2 (6.1) 1,978.2 (3.4)

Canada 15,666.5 9,531.4 32,544.1 57,742.0

14 F o r t h e i r a n a l y s e s o f t h e i m p a c t o f c o n s t r u c t i o n d e l a y s o n t h e c o s t o f g a s c o n s u m e d E E A u s e e s t i m a t e s o f b u r n e r - t i p p r i c e s t h a t t h e y d e r i v e f r o m t h e m a r k e t - c l e a r i n g p r i c e s o u t p u t f r o m t h e G M D F S s i m u l a t i o n s u s i n g h i s t o r i c a l s t a t i s t i c a l r e l a t i o n s h i p s . I n p r e l i m i n a r y a n a l y s i s o f t h e i m p a c t s o f c o n s t r u c t i o n d e l a y s o n C a n a d i a n g a s c o n s u m e r s ’ c o s t s A n g e v i n e E c o n o m i c C o n s u l t i n g u s e d e s t i m a t e s o f b u r n e r - t i p p r i c e s d e v e l o p e d f r o m t h e h i s t o r i c a l r e l a t i o n s h i p s b e t w e e n t h e r e t a i l s a l e s g a s p r i c e s r e p o r t e d b y S t a t i s t i c s C a n a d a a n d t h e w h o l e s a l e m a r k e t p r i c e e s t i m a t e s o b t a i n e d f r o m t h e G M D F S s i m u l a t i o n s . T h i s a p p r o a c h w a s d e t e r m i n e d t o b e u n s a t i s f a c t o r y b e c a u s e , i t a s s u m e d t h a t t h e n o n -e n e r g y c o m p o n e n t s o f t h e r e t a i l s e l l i n g p r i c e s , s u c h a s g a s d i s t r i b u t i o n e x p e n s e s , i n c r e a s e ( o r d e c l i n e ) i n s t e p t h e c h a n g e s i n t h e w h o l e s a l e m a r k e t - c l e a r i n g p r i c e s .

Tota l Canad ian gas consumpt ion dec l ines by 2 .6 percen t in the De lay Case f rom the Base Case bu t pr i ces increase by as much as 17 percen t , on average through the fo recas t per iod . For th is reason gas consumers ’ b i l l s wou ld undoubted ly be s ign i f i can t l y h igher in the case o f s ign i f i can t gas in f ras t ruc tu re cons t ruc t ion de lays . Deta i l s by year and sec tor o f the es t imated cos t o f de layed na tu ra l gas in f ras t ruc ture cons t ruc t ion a re prov ided by prov ince and reg ion in the tab les presen ted in Append ix C. The grea tes t impacts a re in A lber ta and Ontar io . The two-year de lays in cons t ruc t ion o f the Mackenz ie Gas P ipe l ine and an A laska gas p ipe l ine , a long w i th the o ther pro jec t de lays assumed in the De lay Case, increase the cos t o f gas to consumers by $20.2 b i l l ion (2005 do l la rs) and $19.1 b i l l i on , respec t ive ly , compared w i th the Base Case. In A lber ta the l ions ’ share o f the impac t fa l l s on the indus t r ia l sec tor . The s i tua t ion i s qu i te d i f fe rent in Ontar io where a lmost fo r ty percent o f tha t impac t fa l l s on res iden t ia l gas consumers . In fac t , the Ontar io res iden t ia l sec tor su f fers a $7.8 b i l l i on cos t inc rease through the forecas t per iod o r about ha l f o f the h i t taken by the res iden t ia l sec tor in Canada as a whole .

4. The Broader Economic Impacts A de lay in in f ras t ructure const ruc t ion wou ld a lso impac t consumers through the e f fec ts that the inc reased cos t o f gas resu l t ing f rom h igher gas marke t pr i ces wou ld have on e lect r i c i t y pr i ces. H igher gas p r i ces would a f fec t the cos t o f gas used by power genera tors subs tan t ia l l y because “once a l l o f the non-gas- f i red generat ion i s d ispa tched there i s no a l te rna t i ve to us ing gas- f i red genera t ion where i t i s ava i lab le . A t tha t po in t power genera to rs w i l l pay a lmost any p r ice fo r na tu ra l gas . As a resu l t , any increase in gas p r ices tha t resu l ts f rom a lack o f na tu ra l gas in f ras t ructu re w i l l be re f lec ted in e lec t r i c i t y p r i ces” un t i l gas- f i red generat ion un i ts can be rep laced by fac i l i t i es w i th lower a l l - in generat ion cos ts . 15

H igher natura l gas pr i ces resu l t ing f rom de layed gas in f ras t ruc ture cons t ruc t ion wou ld inc rease the cos t o f gas needed to d r i ve gas p ipe l ine compressors . In t ime, th is cou ld be expec ted to p lace fur ther upward pressure on who lesa le marke t and burner -t ip gas pr i ces . H igher gas pr i ces wou ld a lso inc rease the cos t o f methane and methane der iva t i ve feedstock used in po lyethy lene and o ther pe t rochemica l p lants . In tu rn , th is wou ld lead to h igher pr i ces across a broad range o f consumer produc ts . In shor t , a more comple te ana lys is o f the economic impac ts o f h igher pr i ces caused by gas in f ras t ructure cons t ruc t ion de lays wou ld undoubted ly demonst ra te tha t the cos t wou ld be subs tan t ia l l y g reater than the “ f i r s t round” e f fec ts es t imated in th is s tudy . For th is reason the b roader impac ts on the economy is be ing inves t iga ted by CEPA u t i l i z ing the S ta t i s t ics Canada Inpu t /Outpu t Mode l .

15 T h e q u o t a t i o n i s f r o m p a g e 7 7 o f t h e I N G A A S t u d y .

C O N C L U S I O N Th is ex tens ion to Canada o f the type o f ana lys is o f the consequences o f a two-year de lay in gas in f ras t ructure cons t ruct ion that EEA under took for the INGAA Foundat ion in 2004 ind ica tes tha t the impac ts o f such a de lay on Canad ian gas consumers wou ld be very subs tan t ia l w i th p r i ces be ing d r i ven up by marke t cond i t ions tha t are genera l l y supp ly -cons t ra ined . Compar ison o f the gas consumpt ion vo lumes in the Base and De lay Cases ind ica tes tha t there wou ld be some demand reduc t ion , espec ia l l y in the indus t r ia l sec tor . However the reduc t ion in gas use because o f e i ther subst i tu t ion or conservat ion wou ld no t by any means be su f f i c ient to p reven t consumers ’ gas b i l l s f rom r is ing s ign i f i can t l y because o f h igher burner - t ip p r i ces. Fur ther , the ana lys is ind ica tes tha t the impact wou ld not be con f ined to the ma jor gas-produc ing prov inces. In fac t , i t suggests tha t Ontar io consumers wou ld have to bear as much as one- th i rd the cost inc rease through 2006-2025 fo l lowed by gas consumers in A lber ta and Br i t i sh Co lumbia w i th 35 percen t and 13 percen t , respec t i ve ly . The remain ing 19 percen t o f the burden wou ld fa l l on consumers in Quebec, Saska tchewan, the Mar i t imes and Man i toba – in tha t order . The ana lys is repor ted here prov ides cons iderab le ins ight in to the l i ke ly o rder o f magn i tude and pervas iveness o f the impac ts tha t de layed in f ras t ructure cons t ruct ion cou ld have on Canad ian res ident ia l , commerc ia l and indus t r ia l gas consumers . When the impac ts o f reduced spend ing on o ther products because o f h igher gas b i l l s a re eva luated, and combined w i th the f i r s t - round resu l ts , the b road economic impac t i s an t i c ipa ted to be qu i te p ro found.

Appendix A

LNG Impor t Assumpt ions in the Base and De layed Const ruc t ion Cases

Location 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025Everett 166 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 Quebec - - - - 91 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 Cove Point 221 274 274 458 456 566 566 567 566 566 566 567 566 566 566 567 566 566 566 567 566 Elba Island 132 146 244 293 292 292 292 293 292 292 292 293 292 292 292 293 292 292 292 293 292 Florida/Bahamas - - - - - 183 274 275 274 274 274 275 274 274 274 275 274 456 456 641 821 SoCal - - - - - - - - - - - 275 365 456 456 549 548 548 584 586 584 Eastern Canada - - - - - - 183 275 365 365 365 366 365 365 365 366 365 365 365 366 365 Altamira Mex - - - - 256 256 256 256 256 256 256 256 256 256 256 256 255 255 255 256 255 Lk Charles & Other LA 102 337 438 805 803 913 913 1,217 1,405 1,606 1,752 1,940 2,117 2,300 2,592 2,672 2,920 2,920 2,920 2,928 2,920 Katy/HSC - - 23 137 228 228 411 503 602 694 803 915 1,004 1,186 1,186 1,281 1,278 1,278 1,278 1,281 1,278 Corpus Christi - - - - 183 183 183 366 456 548 639 732 730 730 730 915 913 913 913 915 913 Energy Bridge 31 73 110 146 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 Vancouver - - - - - - 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 Baja Mex - - - 110 110 219 219 220 365 365 365 366 365 365 365 366 365 365 365 366 365 Alaska Ex (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) Net Imports 587 933 1,192 2,052 2,705 3,309 3,949 4,624 5,233 5,618 5,964 6,637 6,986 7,442 7,734 8,192 8,428 8,610 8,646 8,851 9,011

Delay Case Imports in Bcf per YearLocation 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025Everett 166 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 168 Quebec - - - - 91 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 Cove Point 221 274 274 275 274 456 456 567 566 566 566 567 566 566 566 567 566 566 566 567 566 Elba Island 132 146 146 146 244 292 292 293 292 292 292 293 292 292 292 293 292 292 292 293 292 Florida/Bahamas - - - - - - - 183 274 274 274 275 274 274 274 275 274 274 274 458 456 SoCal - - - - - - - - - - - - - 274 365 458 456 548 549 549 584 Eastern Canada - - - - - - 183 275 365 366 365 366 365 365 365 366 365 365 365 366 365 Altamira Mex - - - - - - 256 256 256 255 256 256 256 255 256 256 256 255 255 256 255 Lk Charles & Other LA 102 183 183 337 438 803 803 915 913 1,214 1,405 1,610 1,752 1,935 2,117 2,306 2,592 2,665 2,920 2,928 2,920 Katy/HSC - - - - 23 137 228 229 411 502 602 695 803 913 1,004 1,190 1,186 1,278 1,278 1,281 1,278 Corpus Christi - - - - - - 183 183 183 365 456 549 639 730 730 732 730 913 913 915 913 Energy Bridge 31 73 73 73 110 146 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 Vancouver - - - - - - - - 183 183 183 183 183 183 183 183 183 183 183 183 183 Baja Mex - - - - - 110 110 220 219 219 365 366 365 365 365 366 365 365 365 366 365 Alaska Ex (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) (65) Net Imports 587 779 779 934 1,283 2,230 2,980 3,590 4,131 4,705 5,233 5,629 5,964 6,621 6,986 7,461 7,734 8,173 8,429 8,631 8,646

Appendix B Prov inc ia l and Reg iona l Impac ts o f De layed Natura l Gas In f ras t ruc ture Cons t ruct ion on Gas Consumpt ion Vo lumes

2023 0.07 0.11 3.67 3.842024 0.13 0.21 3.56 3.902025 0.22 0.36 -0.31 0.28Total -20.30 -34.79 -74.45 -129.55

British Columbia Natural Gas Consumption by Sector Changes from Base Case (Bcf)

Resid. Comm. Indust. Total2006 -0.03 -0.05 -1.15 -1.222007 -0.20 -0.35 -4.22 -4.772008 -0.54 -0.94 -8.03 -9.522009 -1.07 -1.83 -11.32 -14.232010 -1.63 -2.77 -6.28 -10.692011 -1.88 -3.18 -6.87 -11.932012 -2.11 -3.59 -6.19 -11.902013 -1.93 -3.29 -5.00 -10.222014 -1.62 -2.78 -5.79 -10.192015 -1.90 -3.25 -14.86 -20.002016 -2.73 -4.66 -13.84 -21.222017 -2.87 -4.93 1.42 -6.392018 -2.30 -3.99 4.01 -2.282019 -1.30 -2.26 1.22 -2.342020 0.36 0.63 -0.49 0.492021 0.80 1.38 -2.94 -0.772022 0.24 0.40 -1.04 -0.40

Saskatchewan Natural Gas Consumption by Sector Changes from Base Case (Bcf)

Resid. Comm. Indust. Total2006 -0.01 -0.02 -1.76 -1.792007 -0.10 -0.13 -6.54 -6.782008 -0.28 -0.35 -12.25 -12.872009 -0.53 -0.66 -16.86 -18.052010 -0.79 -0.98 -9.29 -11.062011 -0.88 -1.10 -9.13 -11.102012 -0.94 -1.18 -8.59 -10.712013 -0.83 -1.05 -6.75 -8.622014 -0.67 -0.86 -7.41 -8.942015 -0.78 -0.99 -17.86 -19.632016 -1.09 -1.39 -17.20 -19.682017 -1.13 -1.45 0.51 -2.062018 -0.87 -1.14 4.33 2.322019 -0.48 -0.63 1.61 0.492020 0.12 0.15 -0.34 -0.062021 0.28 0.36 -3.07 -2.432022 0.07 0.09 -1.17 -1.002023 0.01 0.02 3.85 3.882024 0.05 0.06 3.84 3.942025 0.09 0.11 -0.13 0.07Total -8.76 -11.13 -104.21 -124.10

Manitoba Natural Gas Consumption by Sector Changes from Base Case (Bcf)

Resid. Comm. Indust. Total2006 -0.01 -0.02 -0.48 -0.512007 -0.05 -0.15 -1.66 -1.872008 -0.14 -0.41 -3.15 -3.712009 -0.27 -0.79 -4.39 -5.452010 -0.40 -1.17 -2.47 -4.052011 -0.44 -1.31 -2.49 -4.252012 -0.47 -1.41 -2.38 -4.262013 -0.40 -1.24 -1.91 -3.562014 -0.33 -1.02 -2.09 -3.432015 -0.36 -1.14 -5.19 -6.702016 -0.50 -1.60 -5.15 -7.242017 -0.51 -1.67 0.18 -2.002018 -0.39 -1.30 1.43 -0.262019 -0.22 -0.74 0.56 -0.402020 0.04 0.15 -0.14 0.052021 0.12 0.42 -1.00 -0.472022 0.03 0.10 -0.41 -0.282023 0.00 0.00 1.28 1.282024 0.02 0.06 1.27 1.342025 0.04 0.14 -0.02 0.16Total -4.25 -13.11 -28.24 -45.59

Quebec Natural Gas Consumption by Sector Changes from Base Case (Bcf)

Resid. Comm. Indust. Total2006 -0.01 -0.05 -2.81 -2.872007 -0.06 -0.37 -8.87 -9.312008 -0.18 -1.03 -16.89 -18.092009 -0.34 -1.98 -23.21 -25.532010 -0.51 -3.00 -13.30 -16.812011 -0.57 -3.34 -13.30 -17.202012 -0.60 -3.59 -12.65 -16.842013 -0.52 -3.16 -9.66 -13.352014 -0.42 -2.57 -10.30 -13.302015 -0.45 -2.76 -26.34 -29.562016 -0.61 -3.75 -27.00 -31.362017 -0.63 -3.93 1.85 -2.712018 -0.48 -3.01 8.97 5.472019 -0.27 -1.72 3.88 1.902020 0.06 0.38 0.48 0.912021 0.17 1.06 -3.80 -2.572022 0.04 0.27 -1.38 -1.062023 0.00 -0.01 5.74 5.732024 0.01 0.05 4.50 4.562025 0.05 0.32 -0.35 0.02Total -5.33 -32.20 -144.43 -181.96

Maritimes Industrial Sec as ConsumptionChanges from Base Case (Bcf)

2006 -0.112007 -0.042008 0.082009 0.032010 0.052011 -0.062012 0.242013 0.352014 0.042015 0.112016 0.132017 -0.122018 -0.242019 0.092020 0.012021 0.042022 0.232023 -0.112024 -0.062025 0.66

tor G

Appendix C P rov in

British Columbia Cost of Infrastructure Delays

(Millions 2005 Dollars)Resid. Comm. S.Indust. N. Indust. Total

2006 38.4 29.4 26.8 44.0 138.52007 125.4 94.2 78.7 139.7 438.02008 231.9 170.5 145.6 254.3 802.22009 323.4 232.7 213.8 351.0 1,121.02010 172.0 115.4 139.2 187.5 614.12011 238.0 164.0 219.9 247.1 869.02012 173.1 113.8 160.9 180.1 628.02013 104.7 64.3 97.1 113.7 379.72014 127.6 83.0 113.0 138.5 462.12015 571.0 415.5 562.6 580.1 2,129.42016 383.6 268.9 357.6 369.9 1,380.02017 (157.9) (132.7) (160.9) (170.9) (622.4)2018 (129.2) (111.4) (106.2) (105.2) (452.1)2019 (72.3) (63.2) (62.6) (55.9) (254.0)2020 (15.9) (9.3) (23.4) (16.3) (64.9)2021 43.7 38.6 18.2 29.9 130.42022 10.8 9.6 2.2 6.6 29.22023 (65.9) (48.4) (43.9) (53.5) (211.7)2024 (52.1) (37.5) (27.0) (42.4) (159.0)2025 6.1 6.1 2.1 2.9 17.3

Totals 2,056.2 1,403.6 1,713.7 2,201.0 7,374.5

c ia l and Reg iona l Impac ts o f De layed Gas In f ras t ruc ture Cons t ruc t ion

Alberta Cost of Infrastructure Delays (Millions 2005 Dollars)

Resid. Comm. Indust. Total2006 76.0 34.3 217.3 327.72007 242.4 106.9 613.8 963.12008 443.2 190.7 1,177.2 1,811.12009 610.6 256.3 1,864.1 2,730.92010 315.6 122.9 1,235.3 1,673.82011 414.4 164.7 1,855.3 2,434.52012 298.0 112.5 1,358.0 1,768.52013 193.5 69.1 900.6 1,163.22014 241.5 91.4 1,079.2 1,412.12015 1,057.3 441.6 4,956.5 6,455.42016 692.6 277.6 3,189.4 4,159.62017 -278.9 -134.1 -1,303.4 -1,716.42018 -233.1 -114.5 -946.3 -1,294.02019 -129.0 -63.9 -545.3 -738.22020 -29.9 -10.1 -196.3 -236.22021 73.1 36.7 206.8 316.62022 16.6 8.6 29.2 54.42023 -115.6 -47.5 -464.5 -627.62024 -92.6 -37.3 -339.5 -469.32025 8.2 5.0 16.2 29.5

Totals 3,804.0 1,510.9 14,903.8 20,218.7

Saskatchewan Cost of Infrastructure Delays

(Millions 2005 Dollars)Resid. Comm. Indust. Total

2006 21.7 12.1 33.9 67.72007 66.7 36.5 85.5 188.72008 120.1 64.6 148.4 333.12009 159.2 84.0 204.9 448.12010 80.6 39.7 131.7 252.12011 97.7 49.1 191.0 337.82012 72.2 34.9 134.9 242.02013 49.3 22.9 91.5 163.72014 56.9 27.8 98.5 183.12015 233.0 126.6 491.4 851.02016 153.8 80.6 308.6 543.02017 (60.8) (38.9) (154.8) (254.5)2018 (53.1) (34.4) (109.4) (196.9)2019 (25.4) (17.0) (52.9) (95.3)2020 (3.4) (1.3) (14.9) (19.5)2021 18.8 12.2 25.1 56.12022 4.6 3.0 3.7 11.32023 (27.3) (15.4) (54.8) (97.4)2024 (22.6) (12.5) (38.7) (73.8)2025 1.4 1.3 1.0 3.6

Totals 943.4 475.9 1,524.4 2,943.8

Manitoba Natural Gas Consumption by Sector Cost of infrastructure Construction Delay (Millions 2005 Dollars)

Resid. Comm. Indust. Total2006 11.9 14.8 8.4 35.12007 36.2 45.7 22.2 104.12008 64.9 83.6 40.0 188.52009 83.9 111.1 55.6 250.72010 41.8 59.4 35.9 137.12011 48.0 68.9 49.7 166.62012 35.9 54.1 36.7 126.72013 25.1 39.3 26.5 90.92014 27.6 42.7 27.7 98.02015 105.9 155.3 130.7 391.92016 72.7 112.0 88.3 273.02017 (26.3) (34.7) (41.9) (102.9)2018 (25.1) (33.9) (33.0) (92.0)2019 (11.1) (14.5) (14.7) (40.3)2020 (0.9) (2.0) (3.7) (6.6)2021 8.9 12.2 8.7 29.82022 2.3 3.2 1.4 6.82023 (12.3) (19.3) (18.4) (50.0)2024 (10.3) (16.6) (14.1) (41.0)2025 0.5 0.2 0.2 0.9Total 479.3 681.5 406.4 1,567.2

On ario

6

90

T

t

Cost of Infrastructure Delays (Millions 2005 Dollars)

Resid. Comm. Indust. Total2006 202.3 113.8 209.5 525.62007 599.7 332.5 528.3 1,460.52008 1,073.0 586.6 866.4 2,526.02009 1,379.9 742.0 1,092.0 3,213.92010 695.8 349.3 661.4 1,706.62011 756.2 383.6 839.1 1,978.92012 588.2 288.5 625.3 1,502.02013 440.3 211.4 485.2 1,136.82014 468.0 234.5 480.5 1,183.02015 1,598.3 887.0 1,874.2 4,359.52016 1,216.6 657.5 1,313.9 3,188.02017 -402.5 -272.5 -605.1 -1,280.12018 -439.5 -289.8 -465.1 -1,194.42019 -181.0 -125.9 -161.6 -468.2020 -10.6 -1.6 -14.6 -26.82021 168.5 111.8 141.0 421.32022 45.5 29.6 26.5 101.72023 -231.8 -136.3 -246.8 -614.2024 -206.3 -120.0 -200.7 -527.2025 3.4 6.1 -12.4 -2.9otals 7,764.1 3,988.0 7,437.0 19,189.1

Quebec Cost of Infrastructure Delays (Millions 2005 Dollars)

Resid. Comm. Indust. Total2006 16.1 41.0 55.9 113.02007 47.6 120.2 149.8 317.62008 85.3 213.2 260.1 558.62009 109.9 271.9 349.9 731.72010 55.6 129.2 217.7 402.52011 60.3 142.2 269.5 472.12012 47.0 107.4 203.1 357.42013 35.1 79.1 158.1 272.42014 37.3 88.0 155.4 280.72015 127.9 335.4 576.2 1,039.42016 97.6 250.0 402.9 750.52017 (32.0) (103.4) (166.0) (301.5)2018 (35.1) (110.6) (130.6) (276.3)2019 (14.7) (48.9) (45.8) (109.4)2020 (1.1) (1.1) (4.9) (7.1)2021 13.5 43.2 37.5 94.22022 3.7 11.8 8.4 23.82023 (18.4) (52.4) (59.3) (130.2)2024 (16.5) (46.9) (53.9) (117.3)2025 0.2 2.2 (4.3) (1.9)

Totals 619.4 1,471.5 2,379.6 4,470.5

Maritimes Cost of Infrastructure Delays

(Millions 2005 Dollars)Resid. Comm. Indust. Total

2006 0.0 0.0 33.4 33.42007 0.0 0.0 96.4 96.42008 0.0 0.0 199.7 199.72009 0.0 0.0 246.0 246.02010 0.0 0.0 105.3 105.32011 0.0 0.0 263.3 263.32012 0.0 0.0 201.3 201.32013 0.0 0.0 159.2 159.22014 0.0 0.0 152.8 152.82015 0.0 0.0 521.0 521.02016 0.0 0.0 309.7 309.72017 0.0 0.0 (113.1) (113.1)2018 0.0 0.0 (65.8) (65.8)2019 0.0 0.0 (97.2) (97.2)2020 0.0 0.0 (16.3) (16.3)2021 0.0 0.0 61.0 61.02022 0.0 0.0 (4.7) (4.7)2023 0.0 0.0 (66.8) (66.8)2024 0.0 0.0 (18.3) (18.3)2025 0.0 0.0 11.2 11.2

Totals 0.0 0.0 1,978.2 1,978.2