A second Canadian liquefied natural gas (LNG) export project has stepped forward on the Pacific Coast of northern British Columbia (BC). The new scheme is a fledgling international venture by private firms that adds a novel twist to the emerging field by marching to an Aboriginal beat.
The surprise identity of the Canadian participant shows in its cryptic name: HN DC LNG LP. HN is short for Haisla Nation, the native community at the BC port of Kitimat. DC stands for Douglas Channel, the sheltered fjord where the tribe wants to put a gas liquefaction plant and tanker loading dock in cooperation with LNG Partners LLC of Houston. The plan discards popular caricatures of northern aboriginal communities as dogmatically opposed to industry, especially when development involves pipelines and tankers.
Partnered as BC LNG Export Co-operative LLC, the Haisla and the Texans have applied to Canada's National Energy Board (NEB) for a 20-year gas export license to ship out an average of 4,932 metric tons (250 MMcf) per day to China, India, Japan, South Korea, Taiwan and any other Asian markets that open up.
The application surfaced on the heels of a ceremony held in Kitimat earlier this month by the Haisla to celebrate their signature on the aboriginal property lease for the first Canadian LNG export terminal project, the KM LNG scheme sponsored by Apache Canada Ltd. and EOG Resources Canada Inc. At the event community leaders described LNG as a cornerstone of ambitions for long-range improvements of regional livelihoods and services.
Not yet announced beyond the regulatory files of the NEB, the new proposal is about one-sixth the size of the jumbo terminal planned by Apache and EOG, which will ship up to 1.4 Bcf/d when completed with two LNG production trains to be built for a forecast C$4.5 billion (see Daily GPI, March 14). But the target supplies, markets and high economic expectations for both projects are the same.
For supplies, BC LNG Export Co-op plans to tap into an anticipated growth stream of shale gas that is beginning to develop inland and northeast of Kitimat using drilling and production methods being transplanted into Canada by Apache, EOG and a lineup of peers from Encana Corp. to Talisman Energy Inc.
The second terminal project's marketing scheme is a variation on the theme of the first one's expectations that Asian demand will resume rising faster than traditional Australian and Middle Eastern LNG suppliers can increase, after the current lull brought on by the 2008-2009 global economic contraction.
Canadian hopes for Pacific Rim energy markets, which drive two oilsands export pipeline proposals as well as the LNG projects, are being fanned to new highs by predictions that growth will accelerate in Asian demand for gas-fired electricity generation. Financial and industry analysts see big opportunities developing for replacing atomic power ahead, in the aftermath to come from Japan's earthquake and terrifying nuclear plant breakdown.
The hopes were high before the natural disaster. "Global LNG supply is at a slight surplus today," according to a study done to support BC LNG's export license application by consulting firm Wood Mackenzie. "The story changes quickly as we approach 2016 due to a dearth of new liquefaction projects taking final investment decision (FID) during the 2006 to 2008 timeframe."
The report, filed with the NEB, says "Approximately 10 Bcf/d equivalent of new projects went into service in 2009-2010, but only 3 Bcf/d is scheduled between 2011-2013. Additionally, several existing LNG facilities have questionable upstream supply to feed the plants, potentially increasing an impending shortfall in supply. Meanwhile, global demand continues at a growth rate that will potentially create a net global LNG shortage by the 2016-2017 time frame."
The projections only vary in detail from supply-side optimism in comparable studies by different consultants for the larger KM LNG project. All the experts see the current surplus as largely concentrated in markets around the Atlantic Ocean, while "robust" demand growth is developing in the emerging economies on the Asian side of the Pacific Ocean.
"Base-case global fundamentals may indicate a balanced market, but actual market realities are creating a supply-demand imbalance in the Pacific, which will support Asian LNG contract pricing. The Douglas Channel Energy Project [as BC LNG's plan is also known] is placed to be one of the contenders to capture a portion of this potential market," Wood Mackenzie says.
Like KM LNG, the smaller second Canadian terminal scheme is telling the NEB that a long gas export license is a crucial marketing prerequisite for seeking a piece of the Asian action. Customers in Japan, South Korea and Taiwan especially seek assurances that they can obtain long supply commitments, say the project sponsors. Their NEB filings observe that Asian LNG contracts, while leaving details of their oil-indexed pricing formulas open to periodic adjustments, almost invariably require years- or decades-long commitments to reliable delivery volumes. BC LNG is promising to offer ownership participation in its project to suppliers and buyers alike.
While the Haisla aboriginal community-owned participant in BC LNG is a recently created industry novice, the Houston partner is no beginner. LNG Partners is a Delaware-incorporated operation that is a brainchild of Texas entrepreneurs Thomas P. Tatham and Frank C. Wade. The firm has a Newfoundland branch that has obtained federal and provincial approvals for a Canadian East Coast LNG terminal. Subsidiary Maverick LNG Holdings Ltd. is converting a tanker into a combination liquefaction plant and delivery vessel of a new type dubbed FLNG, short for floating liquefied natural gas. The idea is a roving plant capable of scooping up small volumes of supplies for sale around the globe.
The NEB filing by the Haisla and the Texans describes their terminal construction plan as flexible, thanks to its comparatively small size, with two options still open: a compact 10-acre dockside facility that would minimize disturbance of aboriginal property, or a floating liquefaction plant capable of fitting on a ocean-going barge 125 meters (410 feet) long and 32 meters (105 feet) wide. Cost estimates are still being developed.
The project's regulatory, supply procurement and marketing schedule calls for BC LNG, like KM LNG, to catch the forecast Asian demand wave by completing the first of two production lines in time for deliveries to begin in late 2013.
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