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TransCanada Bullish on LNG Export Outlook

Canadian West Coast terminal projects will overcome delays in securing customers and start exporting high volumes of liquefied natural gas (LNG) to Asia within six years, says the country's top pipeline company.

The prediction stands out in an update of a construction application by TransCanada Corp.'s supply grid in Alberta and British Columbia (BC), Nova Gas Transmission Ltd. (NGTL), for a C$1.7 billion (US$1.5 billion) extension into a shale drilling region.

Terminals will be built on the northern Pacific coast of BC and begin loading shale production into tankers over the next four years, says a forecast filed by NGTL as part of its North Montney Project application to the National Energy Board (NEB).

The forecast predicts four trains, each capable of turning 800 MMcf/d of shale gas into LNG, will be running before the end of this decade -- two starting in 2018, followed by a second pair in 2019.

As of 2020, NGTL foresees BC export terminals loading up LNG tankers bound for Asia at an aggressive pace of 3.2 Bcf/d. Over the following decade the export traffic is projected to grow by 50%, reaching 4.8 Bcf/d in 2030.

The forecast acknowledges widespread skepticism about the lineup of 10 BC coast terminal projects that has formed over the past five years. If all the proposals succeeded the Canadian gas industry would swiftly about double its current output by adding 15 Bcf/d of shale production.

Another three projects call for further growth by 5 Bcf/d for Canadian exports flowing out through two LNG terminals on the Oregon coast and one loading Atlantic tankers in Nova Scotia.

NGTL urges forecasters and the NEB to be realistic by recognizing that Canadian gas producers and their Asian partners in shale supply and terminal projects are truly determined to add an international trading dimension.

NGTL said, "Not all of these projects are expected to proceed; however, the list does illustrate the strong industry interest in this business opportunity."

The TransCanada subsidiary hedges its bets by not naming which LNG projects it believes will advance to construction. But NGTL's North Montney Project, named after the most accessible BC shale gas deposit, is closely tied to one of the biggest entries in the Pacific Coast export terminal lineup.

The prime customer for delivery service on the proposed pipeline is Progress Energy, the Canadian subsidiary of Malaysian state energy conglomerate Petroliam Nasional Berhad (Petronas). Its BC shale gas development program aims to supply all markets but focuses on filling its proposed West Coast terminal, Pacific NorthWest LNG.

The Pacific NorthWest project has an NEB license for exports of up to 2.7 Bcf/d and has declared intentions to make a formal construction decision this year. Determination to go ahead showed on Wednesday, when Petronas-Progress closed two deals to increase its North Montney holdings by buying 287,500 acres (450 square miles) of shale drilling prospects from other producers in the area for C$1.6 billion (US$1.4 billion).

As both investment partners and buyers for shares of production equal to their interests in the terminal, Progress-Petronas has recruited Indian Oil Corp. and Japan's JAPEX group to take 10% each and Petroleum Brunei to have 3%.

NGTL is seeking approval to install 305 kilometers (190 miles) of jumbo pipe, 42 inches in diameter, across the North Montney deposit. The project schedule says service requests call for deliveries to start in 2016 and grow to 2 Bcf/d as of 2019.

Modern development, using horizontal drilling and hydraulic fracturing, is still in the early stages in the 20,720-square-kilometer (8,000-square-mile) North Montney formation and its gas content remains debatable. NGTL says its own, deliberately conservative forecasts show the area harbors 613 Tcf of gas and currently known methods can produce 85 Tcf, or about 15% of the total deposit. Other more optimistic estimates run to as much as double the NGTL forecast.

Supply costs -- for all phases of shale development plus a 15% annual rate of return on investment -- are headed in the right direction by gradually going down as producers gain experience in the area, NGTL said. The pipeline predicts North Montney costs will drop from a current average of about C$3.25/Mcf (US$2.90) to a highly competitive C$2.00/Mcf (US$1.80) or so in years to come.

The NEB has scheduled hearings on NGTL's North Montney pipeline addition to start in August. The case will test the Canadian industry's faith in prospects for LNG export terminals on the northern Pacific Coast and their promises to improve prices for all by clearing away supply gluts. NGTL proposes to pay for the new facilities with a rolled-in toll method that will make all users of its BC and Alberta grid share in the costs.

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