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Quebec Offers to Subsidize LNG Distribution Network in Province

The provincial government in Quebec has posted an offer to subsidize creation of a liquefied natural gas (LNG) distribution network for the Texas-sized northeastern region of French Canada.

The province "could if necessary accept to support financially, for a limited period, a solution to transport it," according to a call for LNG delivery proposals by the Ministry of Energy and Natural Resources.

The call indicates the aid would cover a five-year startup of LNG supply for 700,000 square kilometers (280,000 square miles) northeast of Quebec City, a region designated as Plan Nord by provincial economic development policy.

By gas industry standards, a modest beginning is anticipated. A low minimum is set for initial distribution: 245,000 cubic meters per year of LNG -- just 110,250 tons, or about 5 Bcf of conventional pipeline deliveries.

Consumption would be chiefly industrial. The vast region has a thinly spread population of only 125,000, but is sprinkled with nickel, gold, copper, zinc, diamond and titanium mines as well as aluminum smelters and iron pellet plants.

LNG is sought as a more economical option than extending limited pipelines: the Trans Quebec & Maritimes (TQ&M) eastern leg of TransCanada Corp.'s system that terminates at Quebec City, and the Energir distribution grid along the St. Lawrence River.

The ministry recalls that a 2012 inquiry into creating a conventional distribution grid "was not completed because of the prohibitive cost of building a 450-kilometer (270-mile) gas pipeline combined with an uncertain potential demand for natural gas in the wake of a significant drop in the price of iron in the global market."

The call for proposals sets a tight deadline of Oct. 15. But a contender has already been advancing an LNG plan for northern Quebec for more than four years: a consortium led by a Norwegian international supply house: Stolt-Nielsen Gas Ltd. (SNG).

The call follows failure to start construction on a US$570 million terminal, Stolt LNGaz, that the Quebec government approved in August 2015 as a purely commercial, unsubsidized enterprise.

The original project schedule set a late-2017 completion target for Stolt LNGaz on its provincially approved site at Becancour, which is inside the TQ&M and Energir gas supply network midway between Montreal and Quebec City.

The Norwegian firm has told its stockholders that "progress on the project has slowed due to the impact of the weak commodity market on our target customers.

"While SNG's commitments remain in place, customers' decisions on the capital expenditures needed to make the changeover from fuel oil and diesel systems to natural gas are progressing more slowly than originally expected."

The Quebec energy ministry's call for fresh LNG proposals raises a possibility that it would support a request for federal as well as provincial government financial aid to get the northern supply network off the drawing board and into operation.

The call emphasizes environmental benefits of substituting clean-burning gas for heavy fuel oil and diesel. The approach is bound to appeal to Canada's Liberal federal regime, which stresses green policies including a hotly contested national carbon tax. The Quebec government, also Liberal, is likewise committed to cleaning up fossil fuel emissions.

"A natural gas supply service would gradually reduce the reliance on more polluting petroleum products," the provincial energy ministry said. "Conversion of industrial installations to natural gas would help to attain ambitious targets that the government of Quebec has set with regard to greenhouse gas reduction by 2030. The increased use of natural gas in the rail and maritime transport sectors would also contribute."

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