Sales competition is undermining international prices for liquefied natural gas (LNG), according to ExxonMobil Corp.’s export terminal proposal for the northern Pacific Coast of British Columbia (BC). The supermajor and Canadian affiliate Imperial Oil Ltd. noted the competition in a filing with the National Energy Board (NEB) to build a terminal that could export as much as 30 million metric tons a year (mmty) to overseas markets.
However, the erosion is gradual and still leaves the overseas market strong enough to fuel high hopes that since 2008 spawned nine BC LNG projects and inspired the province’s Liberal government to make support for development a top political and regulatory priority.
WCC LNG, a mammoth drilling, processing and tanker port scheme crafted by ExxonMobil Canada Ltd. and majority-owned Imperial filed an encouraging global market outlook to support its gas export license application to the NEB. The companies, which said late last year they were studying a BC project, launched WCC last month (see NGI, June 21; Dec. 17, 2012).
Growing global trade in LNG will serve up to 47 markets as of 2025 — up sharply from the current 27 and nearly a seven-fold jump since the number of outlets stood at only seven in 1990 — according to the report for WCC by Colorado consultant PFC Energy. PFC merged in June with Washington, DC-based IHS Inc.
Parallel increases in suppliers have affected but not yet broken a long-standing LNG tradition of building the traffic on long contracts that set prices with indexes that link natural gas to oil. Known as the “oil parity coefficient,” the formula was for decades a mirror image of the two fossil fuels’ comparative energy content: 1 bbl equals 6 MMBtu, making the value of LNG the oil price multiplied by 0.17.
The coefficient began slipping in 2007, when North American shale supply development turned gas from scarce treasure into abundant merchandise and producers in the United States and Canada started converting LNG import plans into export projects. In overseas LNG supply contracts, the prevailing oil parity coefficient dropped to 0.148 last year and has lately been dipping somewhat further to a level at or below 0.14, PFC said.
At oil’s current trading area of US$100/bbl, the pre-2007 coefficient of 0.17 priced LNG at $17.00/MMBtu. The reduced coefficient, 0.14, prices LNG at $14.00/MMBtu. In effect, the spread of sales competition across a growing market cut the oil-indexed value of LNG by 18%. The overseas price slippage remains marginal from the viewpoint of Canadian producers, which are beleaguered by competition in Ontario and Quebec from U.S. shale gas exports as well as a home-grown Western Canada glut.
Between 2008 and 2012 the Canadian industry benchmark — the Alberta price known as NIT (Nova inventory transfer) or AECO (a trading hub) — plummeted by 70% from an annual average of US$8.25/MMBtu to $2.44/MMBtu. Recovery has only been partial to a first quarter 2013 average of $3.13/MMBtu, reported Calgary’s GLJ Petroleum Consultants, which makes a specialty of tracking the trends.
The overseas LNG trade will keep on growing enough to absorb spreading sales competition without mimicking the Canadian gas price collapse, PFC data suggested. The consulting house forecast that the total size of global LNG markets, which was an annual 240 mmt, or 12 Tcf in 2012, will double to 486 mmt (24 Tcf) as of 2030 and grow again by 17% to 571 mmt (28 Tcf) in 2045.
The competitive spirit creeping into LNG supply development shows in expert reports filed with the NEB to support the export terminal plans lined up on BC’s northern Pacific Coast. PFC’s outlook study for the WCC scheme forecast that as of 2020, U.S. projects will load up tankers with 43 mmty, or 2.2 Tcf/year, while new Canadian terminals lag behind by sending 24.4 mmty (1.2 Tcf/y) overseas.
However, Calgary-based Ziff Energy Group foresees Canadian development eventually taking the global lead, according to a report done for BG Group’s Prince Rupert LNG project. As of 2050, the Ziff study projected total North American LNG exports of 11.6 Bcf/d, with 7.6 Bcf/d or 66% of the traffic, originating at Canadian terminals.
U.S. producers, especially in the shale fields of the Northeast, have easier pickings in Ontario and Quebec where export growth only uses reconfigured pipelines instead of requiring multibillion-dollar spending on coastal liquefaction plants and tanker docks, the Ziff report said. The Calgary consultants estimated that U.S. pipeline exports to Canada are on the way up to 4.4 Bcf/d, or nearly double the 2012 U.S. deliveries north across the border of 2.6 Bcf/d.
In BC, the WCC team of ExxonMobil and Imperial made it plain that they are willing to hear offers from the contenders that have started regulatory moves toward building pipelines to coastal sites of LNG terminals from northern shale deposits: TransCanada Corp. and Spectra Energy (Westcoast). The WCC partners own about 1.4 million acres (2,240 square miles) of shale drilling rights in BC and the central Mackenzie Valley district of the Northwest Territories. ExxonMobil is the biggest leaseholder in BC’s Horn River Shale.
“Several possible pipeline options are being considered,” WCC said in its application for an NEB license authorizing LNG exports of 30 mmty (1.46 Tcf, or four Bcf/d). They include “existing systems; expansions; new third-party systems; and new proprietary systems.” WCC said its owners “have entered into confidentiality agreements with several pipeline companies and are in discussions regarding services for delivery of gas to the LNG terminal.”
Â©Copyright 2013Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2022 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 1532-1266 |