Simultaneous announcements Thursday in San Diego and Quebec City put teeth in messages sent to Canadian exporters by new reports from the U.S. Department of Energy and Canada's National Energy Board (NEB) -- they no longer own U.S. markets for imported natural gas.
In Quebec Enbridge Inc., Gaz Metro and Gaz de France announced a long-awaited, long-term supply contract with Russia's Gazprom (see related story). The deal enables the trio to build its proposed C$840-million Rabaska liquefied natural gas (LNG) terminal on the Saint Lawrence River near Quebec City for production from a mega-gas field called Shtokman, 450 kilometers (280 miles) offshore of Murmansk in the Barents Sea.
At the same time San Diego's Sempra Energy said its new $1-billion Energia Costa Azul terminal in Baja California has begun unloading the first LNG cargoes delivered to the West Coast (see related story).
The Gazprom contract calls for Rabaska to import 100% Russian gas, initially at a rate of 500 MMcf/d. Deliveries are scheduled to start in 2014. Details of the arrangement remain undisclosed and still under final closing negotiation, including pricing and an agreement for Gazprom Marketing & Trading USA Inc. to become a part owner of the terminal.
In a trend most Canadians prefer to discount or ignore altogether, international gas supplies have been penetrating their export markets at a faster growth rate than demand.
Since 1998 annual total U.S. imports climbed by 47% to 4.7 Tcf from 3.2 Tcf, says a new report by the energy department's office of oil and gas global security and supply.
The trade accounts record sustained 10-fold growth since the late 1990s by international rivals for sales that drive about three-quarters of the province's drilling and royalty revenues.
Pipeline deliveries from Canada grew by 26% to 3.8 Tcf from 3.1 Tcf. More than half of the nation's production flowed to the United States. Alberta firms made virtually all the sales, with about four-fifths of the supplies coming from wells in their home province.
But U.S. LNG imports, led by surging supplies from Trinidad and Tobago, grew ten-fold to 771 Bcf last year from 76 Bcf in 1997. The LNG share of U.S. markets for imported gas shot up to 16% last year from a range of 1-4% where the international traffic stagnated through the 1990s.
"Natural gas from the global LNG market will become an increasingly important component of North American supply," the NEB says in a spring industry review. "Proven reserves of natural gas worldwide are about 20 times larger than the proven reserves of North America. Continued development of liquefaction capacity in producing regions and growth in the global LNG shipping fleet will enable North American markets to access greater LNG supply in the world market," the NEB says.
One Canadian producer with a taste for international ventures chose to get in step with the trend. A British arm of Petro-Canada holds a 17.3% investment interest in Trinidad's BP-led Atlantic LNG project and is in the midst of a six-month drilling campaign on its offshore exploration leases. January tests of the first well, called Cassra, drilled to 1,712 meters (5,588 feet) below sea level in water 430 meters (1,400 feet) deep, flowed 23 MMcf/d in production tests. The success prompted Petro-Canada to disclose it is on the trail of reserves of up to 1.3 Tcf at a 68-square-kilometer location.
Petro-Canada has also tried for years to negotiate a drilling and production arrangement with Gazprom. The attempt to break into Russia has come close but a firm deal continues to elude the Canadian company.
"Liquefied natural gas is converting our gas market into a truly global market," Calgary energy shares boutique Peters & Co. observed in a spring research report. Competition from LNG is real and has potential to limit a recovery just beginning in Canadian gas prices, revenues and drilling, agreed rival investment house FirstEnergy Capital Corp.
Until recently the onset of global gas trading has been ignored, at least partly because it was not a case of offshore suppliers taking customers away. LNG sales initially grew to fill gaps left by inability of aging, strained Alberta conventional gas fields to keep up with growth in U.S. requirements after 2000. But the pattern changed over the past two winters, prompting the investment houses' financial analysts to start tracking LNG tanker traffic and incorporate it into projections of Canadian industry performance.
Mild weather in Europe and Asia made the 2006-2007 heating season a bust in traditional mainstay destinations for LNG suppliers. Tankers sailed to the United States, filling up American gas storage sites and contributing to a North America-wide price slump that eroded Alberta drilling and royalties.
A colder 2007-2008 winter overseas lured LNG tankers away from U.S. ports. American and Canadian markets burned off surplus inventories. Prices rose. Alberta exporters scored their first revenue gains in nearly two years. Oilfield contractors raised their forecasts of 2008 drilling and employment. But the evolving global gas trade has called into question the most expensive Canadian growth plans, and especially the stalled northern pipeline proposal.
The Mackenzie Gas Project will only be built if Arctic production can compete with LNG, senior partner Imperial Oil told the development's marathon regulatory review shortly before announcing a three-year construction deferral after forecast construction costs doubled to C$16.2 billion. By the end of the year, construction of the first Canadian LNG terminal and export pipeline will be complete as additions to Irving Oil's Canaport terminal at its Saint John refinery.
Next heating season, the New Brunswick site will put up to 1.2 Bcf/d on northeastern U.S. markets -- as much as the Mackenzie project would deliver but for just C$1.1 billion or 7% of the arctic scheme's price tag.
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