LNG Canada will likely move forward with expansion: analyst

LNG Canada rendering | BIV files

Canada’s first LNG megaproject now under construction on the B.C. coast will almost certainly become even larger, a Calgary-based gas analyst said last week.

It was predicted that Royal Dutch Shell plc and its partners will move ahead by later this year with the second phase of the LNG Canada project.

Dulles Wang, director of North American gas with energy consultancy Wood Mackenzie Ltd., speaking at a webinar sponsored by Gastech Insights, said his firm believes an expansion of LNG Canada makes sense, and could see all four trains built out before 2020s.

Citing a recent Reuters story that speculated on the go-ahead for the next phase, he said WoodMac now believes that will happen.

“There is a light at the end of the tunnel,” he said, commenting on the low prices and limited market western Canadian gas producers have been coping with.

“Our view is that all four trains will be [underway or sanctioned] before the end of 2020,” he said.

The initial two trains of the project, now being built, will export 1.8 bcf/d of gas and the addition of two more trains would bring that to about four bcf/d.

He said there is little doubt among LNG experts that the demand will be there for that gas by 2023 or so, when all four trains go into operation. Given that current western Canadian gas production is at about 16 bcf/d, he said the go-ahead for all four trains would be very significant for gas producers.

Wang said the next two trains could be built for much less than $40 billion, since key infrastructure will be in place.

Gas supplies key

The main obstacle in the way of the project is that the partners must all assure that they have adequate gas supplies. That would likely not be an issue for Shell and PETRONAS, which both have their own large gas reserves in the Montney and elsewhere in B.C., but Korea Gas Corporation, (KOGAS), which isn’t a producer in the province, might be challenged in finding sufficient gas supplies, particularly for the latter two trains.

Wang said, despite a dip this year in worldwide LNG demand, caused by warmer than average winter weather in Europe and Asia, WoodMac believes global demand for the commodity will be strong by the mid-2020s, clearing the way for more LNG exports from Western Canada.

In addition to its confidence that all four trains of LNG Canada will proceed, the consultancy believes the Woodfibre LNG project, located near Squamish, B.C., will go ahead. That $1.8-billion project, which would initially export 300 mmcf/d of gas, is backed by deep-pocketed Singapore-based Pacific Oil and Gas Limited and has its environmental and other permits in place.

Don’t forget about Jordan Cove

In addition, he and webinar moderator Susan Sakmar, an expert on global gas markets who is with the University of Houston, both believe the long delayed Jordan Cove project will go ahead, likely this year. That US$10 billion LNG export plant, being developed by Calgary-based Pembina Pipeline Corporation, would process 1.2 bcf/d of gas. Although it is located in Oregon, much of the gas supplies for the plant would come from Western Canada.

Wang said his firm also believes there is a chance another LNG export megaproject goes ahead in B.C. and it thinks the Kitimat LNG plant, being proposed by partners Chevron Corporation and Woodside Petroleum Limited for the same general area as the LNG Canada plant, is a likely prospect. Chevron has substantial gas assets in Western Canada and the project, which could be as large as the Shell plant, would give it an opportunity to monetize that gas.

“We are optimistic,” he said. “We think there is an opportunity for another major LNG project in Western Canada.”

He had reservations about a recent report that 10 Canadian gas producers are looking at developing their own LNG export plant.

Nevertheless, he said Canadian gas producers had displayed their innovative abilities in the past to market their gas citing the example of the Alliance Pipeline, which ships gas to the Chicago area.

While the picture is brighter for producers in mid to the latter part of this decade, he said they will have to be creative in the interim in marketing their production.

But, despite higher costs of bringing their production to the LNG export market (about $1,000 a tonne versus $700-$750 for U.S. Gulf Coast exporters) Wang said Canadian LNG projects have the advantage of shorter distances to ship their product to Asia, cooler temperatures (which is better for LNG production) and the fact that buyers value having access to diversified supplies.

He said government support is also important and the B.C. and federal governments have both offered a number of tax and other incentives to promote LNG development.

East Coast prospects

Wang is somewhat skeptical about the prospects for LNG exports on Canada’s East Coast.

There are two plants being proposed, including Goldboro LNG, being planned for Guysborough County, Nova Scotia, and the Bear Head LNG project, being planned for Port Tupper, Nova Scotia.

WoodMac thinks Goldboro, a $10.8 billion project being planned by Pieridae Energy Limited, which would export 1.3 bcf/d, has the best chance of proceeding, since it has strong partners and offtake contracts in place.

However, he said the issue with both plants is access to gas, with pipeline connections to both sites being a challenge.

Jae Mather, co-founder of environmental consultancy CarbonFree, unveiled the conclusions of a whitepaper his group recently produced which suggests that B.C.’s position as a large hydro power producer, with a growing portfolio of renewables, could give LNG projects there a competitive advantage.

He said the use of mostly hydro-sourced electricity to power LNG plants could reduce emissions from the LNG Canada plant by about 53 per cent and Woodfibre, which plans to use electricity, could see emissions drop by 71 per cent.

Mather said the whitepaper advocates the use of electricity by producers as well, which could mean B.C. could become “the lowest-emission LNG producer in the world,” giving it a competitive advantage.

Daily Oil Bulletin