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Canada Issuing Free-Wheeling ‘Hunting Licenses’ for LNG Export Projects

Another two Canadian terminal proposals picked up liquefied natural gas (LNG) export licenses Friday, raising the number of approvals granted by the National Energy Board (NEB) to 25.

AltaGas DC LNG received permission to ship out 9.1 Tcf over 25 years at a rate of up to 1 Bcf/d, and a 25-year permit to export 16.2 Tcf, in daily cargoes up to 1.8 Bcf/d, went to NewTimes Energy.

Both projects have locations on the northern Pacific coast of British Columbia, AltaGas at Kitimat and NewTimes at Prince Rupert.

NewTimes is a Hong Kong firm and a newcomer to the Canadian industry. Calgary-based AltaGas is a veteran, with well-established BC and Alberta operations.

As head of a group that includes Japanese energy conglomerate Idemitsu Kosan, Belgian LNG specialist Emar NV and French international merchant EDF Trading, AltaGas stands out as a candidate to make the first Canadian overseas tanker deliveries.

The AltaGas team designed its export program as a modest, economical entry into the international trade. LNG shipments are scheduled to start at just 110 MMcf/d as early as 2018 by using a floating terminal, the established Pacific Northern Gas utility pipeline to Kitimat, and supplies currently under development in the Montney tight gas formation in BC and Alberta. AltaGas also has a Montney processing plant and producer partner in northern BC.

NewTimes has energy interests in Argentina and the United States but is still working on securing Canadian supply arrangements. The Hong Kong firm is also looking for project partners, and has not yet disclosed any overseas customers.

Canadian production licensed to export LNG has mushroomed to 49.8 Bcf/d as the NEB clears a backlog of permit applications.

Counting two projects that still await NEB rulings after a recent flurry of approvals, the Canadian industry’s overseas trading ambitions add up to 54 Bcf/d -- more than triple the national output record to date, set in 2005, of 17 Tcf/d for all markets.

The 20- to 40-year LNG authorizations add up to an astronomical supply commitment to the overseas trade: 452 Tcf in the licenses granted to date, and a total of 515 Tcf, if the last two cases are decided favorably.

But the big numbers highlight the evolution of a permissive regulatory regime rather than expectations that any more than a minority of the export schemes will succeed at building terminals and load tankers sailing to Asia or Europe.

Until the lineup of Canadian LNG shipping projects began forming in 2010 on the BC, Oregon, Nova Scotia, New Brunswick and Quebec coastlines, long-term export licenses were rare and difficult to obtain.

The old authorizations ratified contracts for disclosed volumes and prices between known exporters in Canada and importers in the United States, using well identified gas sources to enable reviews of costs, benefits and environmental effects.

LNG approvals now are hunting licenses, granted as formal tickets to chase overseas markets that bear little or no resemblance to the integrated North American production, pipeline, storage and trading grid.

After lengthy hearings, not since repeated, the NEB recognized the differences and began adapting the regime in a landmark 2011 approval. The first new-wave license went to KM LNG. KM is short for Kitimat, the port on the northern Pacific coast of BC where the project started the Canadian quest to break into the global tanker trade as an import terminal, then switched to exports as shale gas surpluses emerged and producers sought overseas escape routes from sinking prices on glutted Canadian and U.S. markets.

In launching the new permissive era, the NEB said, “The sequence for attaining regulatory authorizations and contract commitments to effect past export proposals [for U.S. contracts] differs significantly from the sequence that is required of entrants to the global LNG market...

“LNG buyers are seeking security of supply prior to the conclusion of SPAs [sale and purchase agreements]. This includes the authorization from the NEB for a long-term licence to export natural gas.”

The ruling described the project’s review of its gas sources, plus access to the interconnected Canadian and U.S. continental supply grid as assurance of “an opportunity to compete” for overseas sales rather than a guarantee that any would be made.

The KM approval swiftly led to a regulatory overhaul that abolished oral hearings, contract disclosures and environmental reviews from LNG export license cases. Approval requirements were boiled down to expert reviews of gas supply trends, framed as assurances that the hunt for overseas sales poses no threat to long-term Canadian needs.

The NEB long-term LNG export license has evolved into a brief “letter decision,” only differing in details at most from others. No lid is set on rising gas totals in the growing stack of approvals because a ceiling would be speculative interference with opportunities to compete for global sales.

The rulings all include the same acknowledgement that Canadian overseas trade hunting licenses, on top of other supplier countries’ permits, exceed the available targets.

The rulings have standard regulatory phrasing.

“A broad range of factors are likely to limit Canadian LNG export volumes, including both project-related and global considerations. The board will not predict which licenses will be used or used to the full allowance. The board evaluates each application on its own merit.”

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