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Canada’s West Coast Primed for LNG Exports
Producing natural gas in North America today isn’t a particularly lucrative venture, but for proponents of exporting liquefied natural gas (LNG), particularly from Western Canada, the times couldn’t be better.
At least six proposals are in various stages of development to transport LNG from Kitimat, on the west coast of British Columbia, to Asia Pacific markets. Another proposal, confirmed Thursday by BG Group plc, would ship LNG from BC’s Prince Rupert, on the north coast. More proposals and possibly consolidations of proposals, likely are under way as well, according to energy analysts.
Western Canada has become an appealing location for LNG exports, not only because of its proximity to the Asia Pacific but because of the support industry has received from Canadian government, according to analysts.
CIBC World Markets analyst Andrew Potter, who is based in Calgary, said low gas prices may have restricted spending for North American producers, but foreign investors are ready to open their wallets. An estimated C$10 billion-plus has been invested in the nation’s oil and gas assets over the last couple of years, and national oil companies (NOC) and private equity backers are expected to continue to sign deals for gas-rich assets.
“The interest from NOCs in LNG is pretty significant,” said Potter. “We will likely continue to see more resource consolidation as the LNG theme unfolds and a lot of this will happen in 2012 as the NOCs and other LNG counterparties seek to get positioned in the upstream resource before they start to put any real effort into advancing the LNG plants.” Not all of the entrants will sanction their LNG proposals, said Potter. So the race is on among companies hoping to lead the pack.
“There is going to be more consolidation of upstream resource as companies get more serious about LNG projects,” Potter said during a conference call. “The 6-10 Bcf/d of export plans for the Kitimat area that are on the table right now require about 44 Tcf to 100 Tcf of resources to underpin those facilities.” For instance, BC LNG, a project led by Royal Dutch Shell plc, and another by Progress Energy Resources Corp. each need about 32 Tcf of gas available to feed their liquefaction plants. Now they only own about18 Tcf of resources, he said. “What that implies is there is still going to be a huge appetite for (joint ventures) and outright acquisitions,” Potter said.
Canada’s National Energy Board (NEB) has granted two 20-year export licenses to export LNG from the western province, to BC LNG Export Co-operative Ltd., a 50-50 joint venture (JV) between LNG Partners LLC and Haisla Nation (see NGI, Feb. 6a); and KM LNG, a partnership between units of Apache Corp. (40%), EOG Resources Inc. (30%) and Encana Corp. (30%) (see NGI, Oct. 17, 2011). Some analysts are predicting that the partners may sanction KM LNG in the next few days because the producers have scheduled earnings reportsclose to each other next week. Apache, which would operate the terminal, is scheduled Thursday, followed by EOG and Encana on Friday. Other Kitimat LNG export plans for now in various stages include:
According to Potter, LNG export projects less likely to advance are Nexen’s, as well as one by ExxonMobil Corp. and majority-owned Canadian counterpart Imperial Oil Ltd. ExxonMobil is the biggest leaseholder in BC’s gassy Horn River Basin. In addition, Penn West Exploration, Mitsubishi Corp. and Korea Gas Corp. are said to be considering a plan to sell gas produced through their Cordova Embayment JV to LNG exporters instead of building a terminal (see NGI, Aug. 30, 2010).
Shell’s BC LNG project, which is awaiting an NEB license, could be the next big export facility sanctioned by its partners, according to analysts. For several months Shell executives have said they were considering ways to leverage their considerable North American gas assets, a point they reiterated during a conference call this month (see NGI, Feb. 6b). Shell, which is one of the leading integrated LNG producers, has sold a 20% stake in its gassy Groundbirch leasehold in the Montney Shale to PetroChina Co., a subsidiary of CNPC. Shell owns 100% of Groundbirch, whose current output is about 125 MMcf/d.
“To have a successful LNG project, you need to have supply and the Montney is prolific,” said Ziff. LNG developers require access to major customers and PetroChina would provide a “market friendly” partner in Asia. PetroChina controls about 80% of China’s gas supply.
Potter said many would-be LNG buyers are attempting to vertically integrate by investing in the upstream. That would allow them to cash in on all aspects of a project, as CNPC would do through the PetroChina purchase. The first Kitimat export facility should break ground this year, he said. Construction will turn “skeptics into believers” about export plans. The “economics are reasonable” for Western Canada. However, construction costs could soar and labor issues may be a problem, especially if more than one project is sanctioned at the same time.
The planned export terminals will require new gas pipelines to connect to the shale gas fields, which also may lead to consolidation. The Apache-led KM LNG proposal is planning to build a pipe to serve its needs, but eventually one or two large pipelines may be needed to serve regional facilities. “There is no logic at all to seeing three to five facilities built with three to five independent pipelines,” Potter said.
BC’s embrace of natural gas offers “long-term economic prosperity” for the province, said Premier Christy Clark.”We are creating new and exciting opportunities by diversifying our natural gas sector, strengthening job prospects for British Columbians and opening the door to new clean energy projects. My government is positioning LNG as a cornerstone of British Columbia’s long-term economic success.”
Kitimat is not the only BC city considering LNG exports. Prince Rupert, on the province’s north coast, is being eyed by UK-based BG Group plc as a gas export hub as well, officials confirmed Thursday. The Prince Rupert Port Authority has been in talks with BG officials for a few months for a project that could rival several proposals in development for Kitimat, which is on the province’s west coast.
“We’ve entered into an agreement with the Prince Rupert Port Authority…to consider the feasibility of that development in that area,” said BG spokesman David Byford.
Port Authority spokesman Michael Gurney said discussions with BG are “preliminary,” but “the prospect of an LNG facility fits very neatly into the development plan at Ridley Island.”
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