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U.S. LNG Projects Winning the Day, Says Canada Analyst

Liquefied natural gas (LNG) from the United States will reach overseas markets before any tankers are even loaded up at proposed Canadian export terminals, a prominent Calgary energy investment firm conceded Tuesday.

“The Americans are definitely going to beat us,” ARC Financial Group’s Jackie Forrest, research vice-president, told an annual conference held by the Canadian Society for Unconventional Resources (CSUR) and the Society of Petroleum Engineers (SPE).

Forrest pointed to Cheniere Energy Inc.’s project, Sabine Pass LNG on the Louisiana coast of the Gulf of Mexico, as the most likely winner of the North America-wide race out onto international markets, with construction on schedule to ship up to 2.2 Bcf/d starting next year. She said her Calgary investment house can conceive of U.S. LNG exports increasingly steadily into a range of 6-7 Bcf/d by 2020.

The analyst, a former engineer, participated in a reality check for about 1,000 technical personnel at the event in the Canadian gas capital of Calgary, home base for most companies sponsoring 17 LNG terminal projects on the Pacific coast of British Columbia (BC). But failing to reach overseas markets first is no great loss, Forrest added.

She called Cheniere’s breakthrough “a real positive” for the industry in Canada as well as the United States, saying it will start convincing overseas buyers that North American LNG is a viable economic option. In addition, every molecule of gas that leaves North America potentially opens up room for Canadian production on a continent that made a formerly “unthinkable” reversal from scarcity to glut since shale development ended a 30-year supply decline trend in 2005, Forrest said.

Although her ARC Financial has worked out a list of Canadian LNG projects ranked by likelihood of success, the firm makes no attempt to guess when any of them will finish the regulatory process, enter construction and go into service.

The investment house rates Pacific NorthWest LNG -- sponsored by Progress Energy, Canadian subsidiary of Malaysian state oil and gas conglomerate Petronas – as the top BC contender. On the ARC LNG hit parade, the next top contenders are Shell Canada with the LNG Canada project and Chevron Canada with the oldest Pacific coast terminal proposal, KM LNG. But KM partner Apache Corp. is trying to sell its 50% investment half interest as too slow to pay off. The fate of Pacific NorthWest remains unsettled with Petronas president Shamsul Abbas and

BC Premier Christy Clark sparring over a planned provincial LNG export tax and regulatory issues such as aboriginal resistance to all industrial projects liable to affect claimed native homelands. Aboriginal resistance has spread from disputed oil pipelines to conduits to proposed LNG terminals from shale gas development regions in northeastern BC The most advanced plan -- an addition to

TransCanada Corp.'s western grid, Nova Gas Transmission Ltd. (NGTL) -- has run afoul of six native communities claiming their caribou hunting grounds could be spoiled. The proposed line’s sole committed customer is Petronas-Progress and its LNG terminal project. The NGTL proposal, known as the North Montney Project after the shale drilling region it is intended to serve, is in turn only a regional feeder line designed as a beginning on a new province-spanning delivery network that will be required by all the Pacific coast export terminal projects.

TransCanada and rival Westcoast Energy (Spectra) are proposing jumbo pipelines to carry up to 4 Bcf/d about 800 kilometers across the province and for construction costs currently estimated at C$4-6 billion (US$3.6-5.4 billion).

U.S. export terminals have a built-in edge over Canadian projects of being on or near well-established gas delivery routes, observed Veresen Inc. vice-president Vern Wadey.

“You can’t have a cost overrun on an existing pipeline,” Wadey told the CSUR-SPE. “That’s a really big advantage.”

Although Veresen is a Calgary firm with multiple Canadian assets including 50% ownership of Alliance Pipeline between northern BC and Chicago, its site choice for an LNG terminal project is Coos Bay on the southern Pacific coast of Oregon. Known as Jordan Cove LNG, the Veresen proposal needs a new link to the established gas delivery grid. But at a forecast cost of US$1.5 billion for a 370-kilometer (232-mile) installation, the proposed Pacific Connector Pipeline is by BC standards a modest piece of construction.

Wadey said Veresen plans to be able to make a final investment decision to proceed into construction in mid-2015. If the firm hits his target, the first Canadian gas to reach overseas markets could voyage overseas via a U.S. terminal. Veresen holds a license from the National Energy Board to send out BC gas to Oregon for re-export by Jordan Cove LNG.

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