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Would-Be Canadian LNG Export Capacity Would Swamp Demand

Nearly four times more export capacity for liquefied natural gas (LNG) is proposed than the world will need, according to data submitted to Canada’s National Energy Board.

A global inventory of known demand and current supply projects shows that only 27% of their proposed tanker cargoes will be required as of 2035, said Pacific Coast terminal sponsor Wespac Midstream Vancouver LLC.

As a British Columbia (BC) entry in the lineup of 25 Canadian projects for 20- to 25-year LNG export licenses, Wespac filed the reality check Thursday as a “risk-based” market outlook in reply to NEB questions about a novel wrinkle in the company’s application.

Wespac -- a Canadian venture of U.S. firms, investment house High Star Capital LP and construction contractor Primoris Services Corp. -- seeks an “umbrella” license for exports to the United States as well as overseas.

The partners said they want to respond to evolving markets with truck and barge loads of LNG as well as ocean tanker cargoes. Talks on supply contracts are under way with U.S. maritime fuel depots and power plants as well as overseas buyers, Wespac said.

The need to be adaptable shows in a compilation of global LNG data, including material collected independently by authorities such as the Canadian Energy Research Institute and BP, that Navigant Consulting Inc. performed for Wespac.

The survey found that as of February, global demand for LNG is projected to be 78 Bcf/d in 2035. If liquefaction and delivery facilities keep running at their average 90% of flat-out full, 87 Bcf/d of export capacity will be needed.

Currently operating export terminals plus new ones now under construction have capacity for 57 Bcf/d, creating a global market opportunity for additional supply projects to pump out 30 Bcf/d, Navigant calculated.

But the consultants also found that 111 Bcf/d of new capacity is being proposed by LNG export schemes in Canada, the United States, Africa, Eastern Europe, the former Soviet Union, the Middle East, Australia, Central and South America, and Southeast Asia. The projected 30 Bcf/d of new LNG demand is just 27% of the proposed 111 Bcf/d of supply.

The 25 Canadian projects -- and especially 18 LNG export terminals proposed on the Pacific Coast of BC -- face exceptionally great difficulties at securing a share of the limited global growth market, Navigant said.

Total cargoes of 46 Bcf/d are proposed by the Canadian lineup. The keenly pro-development Liberal government of BC hopes to have three or more Pacific coast terminals in operation, shipping out five or more Bcf/d within 10 years.

But Wespac and Navigant forecast net Canadian LNG exports of only 1.3 Bcf/d as of 2035: outbound shipments of 2 Bcf/d, less 0.7 Bcf/d of imports.

Wespac sponsors one of the smallest projects: 400 MMcf/d from a Vancouver-area plant to be built next door to an LNG site that utility FortisBC Energy Inc. operates for regional gas users.

“From a cost perspective, developers of projects on the BC coast will generally face the prospect of building or funding long and expensive pipelines to bring feed-gas from sources or interconnections over coastal mountains -- some of the world’s most difficult natural terrain -- to the project sites,” Wespac and Navigant said.

Unlike other rivals for a piece of the global LNG action, the aspiring BC industry is starting from scratch with known but still largely untapped shale gas deposits requiring connections to terminals 800 kilometers (500 miles) or farther away. Wespac and Navigant point to BC pipeline proposals, now under environmental review, by TransCanada Corp. that carry preliminary price tags of C$4-5 billion (US$3.2-4 billion) each.

“Another cost factor is the fact that many of the Canadian project sites are greenfield, as opposed to being brownfield sites that exist for many projects in the U.S.,” said the Wespac-Navigant NEB filing.

“A greenfield site has little to no existing infrastructure, thus requiring greater investment to complete the development, adding to costs and decreasing competitiveness. For example, necessary utilities such as water and electricity services have to be specially developed, and even things like roads and other supporting infrastructure do not exist currently and need to be built,” the filing said.

American competition for overseas LNG markets is formidable, the NEB filing said.

“Projects that involve the addition of liquefaction facilities at existing LNG import terminals, such as many of the U.S. Gulf Coast projects, have a natural cost advantage due to existing infrastructure including pipeline capacity that may only need to be reversed or existing right of ways that can be used.”

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