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Gaz Metro postpones extension of natural gas pipelines to Quebec north shore

MONTREAL – Gaz Metro is postponing its 450-kilometre extension of natural gas pipelines to Quebec’s north shore region after feasibility studies concluded that weak market conditions for iron ore will make it difficult to reach long-term agreements with major industrial clients.

The natural gas distributor, which is partly owned by Valener (TSX:VNR) said Thursday that decisions by mining companies to defer investments and cease operations prevented it from obtaining minimum natural gas volume to launch the project as originally planned.

The pipeline extension would have served the region including Baie-Comeau, Port-Cartier and Sept-Iles, Quebec’s last industrial port zone without access to the energy source.

Gaz Metro said it will monitor commodity markets to determine whether to restart the project, which it says would enhance the competitive advantage of area businesses. It said that replacing oil with natural gas would save potential clients tens of millions of dollars annually, reduce greenhouse gas emissions by 30 per cent and decrease air pollution.

Pierre Lacroix of Desjardins Capital Markets said the decision shouldn’t have a significant impact on Valener shares since the expansion wasn’t included in expectations.

“The longer term outlook remains favourable, with potential upside in fiscal year 2014 from the start-up of the initial phases of the Seigneurie de Beaupre wind power development in December 2013, which should provide support to Valener’s $1 per share dividend,” he wrote in a report.

Gaz Metro is the largest natural gas distribution company in Quebec with a 10,000-kilometre underground network of pipelines that serve 300 municipalities and more than 185,000 customers.

It is also produces electricity and distributes electricity and natural gas in Vermont, and is partnering to develop a large wind project in Quebec.

On the Toronto Stock Exchange, Valener, which owns 29 per cent of Gaz Metro, gained 12 cents at $16.33 in afternoon trading.