Canadian liquefied natural gas (LNG) terminal projects are running aground on a difference between traditional trade with the United States through pipelines and global commerce in ocean tanker cargoes.
LNG suppliers shop around the planet for markets and refuse to give up their ability to steer for the highest-priced destinations even in exchange for long, reliable sales volume contracts, observed Enbridge Inc. President Pat Daniel. The result is that Daniel sets no date for construction of the $840 million Rabaska import terminal project owned in the Quebec City industrial satellite town of Levis by Enbridge, Montreal distributor Gaz Metro and Gaz de France.
“We have all the permits,” Daniel said in an interview. “We’ve got downstream markets and [pipeline] transportation for regasified LNG. We’re all set to go. We just need to line up long-term supply.”
That leaves 500 MMcf/d Rabaska in the same holding pattern as the $660 million Cacouna Energy Project, another St. Lawrence River LNG terminal planned by Petro-Canada and TransCanada Corp. Cacouna is hoping to obtain long-term contracts for Russian LNG, Petro-Canada president Ron Brenneman has repeatedly told the investment community. Rabaska likewise hopes to obtain a share in supplies developing in Russia but also hopes to tap into other growing sources such as Indonesia and Australia, Daniel said.
Regardless of the country of origin, the Canadian LNG terminal sponsors are looking for LNG supply commitments lasting on the order of 20 years.
“Most LNG providers like to do business on spot markets, and they have done quite well,” Daniel said. “We don’t want to build without having long-term supply agreements. They’re looking for prices that we’re not necessarily able to guarantee.”
The global trading pattern for LNG is a case of suppliers dispatching tankers to the highest-priced market at any given time. Unlike Canadian exporters that only have pipeline routes to a handful of outlets in North America, LNG dealers can switch destinations just by telling a ship to change course. As a result the global dealers can literally follow the weather in the heating season, for instance. The tankers can and do react to circumstances such as a cold snap driving up prices in Europe while a warm spell in the U.S. turns North American markets flat. The ships steer for Europe, just as easily as they head for American ports if the international weather pattern turns around.
Recently some ships destined for the Atlantic Basin have been dispatched to Asia in the Pacific when the price is right.
It is no accident that the Canadian entry in the North American lineup of LNG terminal projects, which has made it into construction is Canaport, beside Irving Oil’s refinery in the New Brunswick commercial hub of St. John. Canaport and the allied Emera Brunswick Pipeline — currently in the final, detailed route phase of regulatory proceedings — have LNG supply assurances through a close link with Spain’s national energy company.
Repsol, which ranks in the top 10 of world oil and gas producers, has contracted for three-quarters of the Brunswick line’s capacity for 1 Bcf/d, and all imports by Canaport are also expected to come from the Spanish company. The supply commitments take the form of a corporate pledge to keep the volumes flowing from its various operations in the Trinidad region of the Caribbean and the Middle East, rather than a contract specifying any one source of LNG. Exactly where the gas comes from will vary depending on global market conditions and the availability of cargoes from Repsol’s array of sources. In approving all but the exact route of the Emera Brunswick connection between Canaport and American and Canadian markets, the National Energy Board said the approach “creates a considerable benefit in that it provides flexibility to draw supply from various fields.”
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