The abundance of domestic liquefied natural gas (LNG) regasification projects is not limited to the Gulf Coast. The northeastern Atlantic Coast has its share of proposed terminals as well. However, given rising construction costs and difficulty in securing LNG supply commitments, their futures are far from certain.

Canaport LNG, a project sited in St. John, NB, and backed by Repsol YPF (75%) and Irving Oil Ltd. (25%), already has its LNG supply lined up, unlike competing projects, according to Phil Ribbeck, director, LNG North America, for Repsol YPF. At a Houston forum held by the Center for Energy Economics and the Canadian Consulate General, Ribbeck provided his take on the Canaport project, some of its competitors and LNG development efforts in general.

The Canaport terminal is estimated to cost $750 million and will have initial firm sendout capacity of 1 Bcf/d with capability to expand to 2 Bcf/d. Early construction efforts are under way, and it is expected to be in operation by late 2008. While touting his project and the competing Bear Head terminal (sponsored by Anadarko Petroleum Corp.) proposed for Cape Breton Island, NS, Ribbeck was candid about all the uncertainties that lie in the paths of LNG developers.

He said that today there is only about 950 MMcf/d of takeaway pipeline capacity to get northeastern regasified LNG to the East Coast market and perhaps another 200 MMcf/d more for shippers who use the Portland Natural Gas Transmission System (PNGTS) to move gas into the Quebec market area. “You’re already looking at a limitation with respect to the infrastructure to support the projects up there. That one, in particular, has not been addressed yet,” Ribbeck said. He did note that state and provincial officials have been discussing incentives to encourage the industry to expand capacity. However, things aren’t moving fast enough.

“When is all this process going to begin? All these guys are talking. But the thing I see is you have the politicians in one area talking about stuff. You have the regulators in another area talking about stuff. And you have all of us in the industry in our own separate silos all talking about stuff. The process has to become a lot more effective with respect to handling all these issues.”

Perhaps a greater threat to LNG project developers in the Northeast is the question of whose project is really needed. By Ribbeck’s math, supplies entering the New England-New York-Atlantic Canada market from the U.S. Gulf Coast amount to about 4.5 Bcf/d. Existing and proposed LNG terminals add to that about 10 Bcf/d, and on top of that add another 7.8 Bcf/d from terminals that have only been announced. That makes for 22.3 Bcf/d of supply for a regional market that consumes about 5 Bcf/d on an average annual basis and is expected to grow to only about 5.75 Bcf/d by 2015, Ribbeck said.

“I’m just part of 22.3 Bcf/d of opportunity for these [market-area] guys,” he said. “They’re going to pick and choose and just do whatever they want. It’s going to be interesting to see how that unfolds over time.”

So far it would seem that Canadian utility and power generation gas consumers are as reluctant to step up to long-term supply contracts as their U.S. counterparts. “The markets really need to know that supply is going to be there when requested,” Ribbeck said. “And that’s an interesting point in itself because you would expect the supplier to say, ‘Well, if my supply is there aren’t you going to take it?’ Not only that, but if there are other markets that have incentives that are greater than the market that you’re going to with your LNG initially, why are you going to supply a guy for less money?”

Ribbeck said that Atlantic Canada projects are advantaged over their Gulf Coast counterparts by about 15 to 25 cents per MMBtu just from the logistics side. However, having to move gas through the Maritimes and Northeast pipeline and other infrastructure to get to market eats that advantage away pretty quickly. “In spite of advantages, some projects don’t compete with the Gulf of Mexico because of their internal North America logistics. As a result, they’re having a tough time getting those LNG supplies.”

Indeed the holders of upstream LNG supplies are particular about their markets. “The host governments of the supply projects look very closely at every penny because that’s less money that goes to their country. Believe me, they’re very, very tight on that.”

Developers also are facing escalating construction costs in every segment of the LNG value chain. Ribbeck said the effects of hurricanes Katrina and Rita are being felt far and wide. “They have ramped up the cost of construction worldwide on energy projects like you wouldn’t believe,” he said. “The amount of projects that are out there today is unbelievable. I think it’s unprecedented, from the LNG side, the refining side, from the upstream side, all the things that are going on in Alberta with respect to the oil sands….” Add to this an attendant shortage of people and still-high steel prices and development costs have increased substantially, he said.

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