Just on my way back from Gastech 2019 where I hosted a panel on new dimensions in LNG supply. Sarah Bairstow at Mexico Pacific LNG, Anton Oussov at KPMG and Jason Bennett at Baker Botts. Some interesting views on project economics, the links between ethane and methane, and new suppliers in Russia, Mexico, the United States and Canada.
Peter Stewart spoke on behalf of Interfax at the Gastech conference in Houston, held 17-19 September. Interfax highlighted Global Gas Analytics and Natural Gas Insight publications.
Peter Stewart spoke on behalf of Interfax at the European Autumn Gas Conference in Paris, which was held 5-7 November. Interfax was a sponsor of the conference and highlighted their Global Gas Analytics and Natural Gas Insight publications. Peter is a frequent speaker at energy conferences and contributed to discussions at the FLAME and Gastech conferences earlier in 2019, in Amsterdam and Houston respectively.
The article below was published in Interfax’s Natural Gas Daily when Peter Stewart was chief energy analyst for Interfax. Peter spoke at the Gas Asia Summit held 31 October-1 November in Singapore.
LNG Canada took FID on 1 October on a C$40 billion ($32 billion) plan to build a two train 13 mtpa facility at Kitimat in northern British Columbia. The plant could be expanded to four trains with a total capacity of 26 mtpa in the future. Kitimat is the traditional territory of the Haisla Nation, which the company said supports the project.
Spotlight on Canada
Speakers at a Canada Spotlight presentation at last week’s Gas Asia Summit in Singapore said Canadian LNG was “open for business” and that between five and 12 plants could be operating in the country by 2030 now LNG Canada has paved the way. However, with more than 200 mtpa of new liquefaction capacity proposed in the United States alone, new entrants such as Mozambique due to take FIDs in H1 2019, and Qatar already planning to expand its LNG capacity to 110 mtpa, the scale of the future Canadian projects is likely to be a bone of contention.
Western Canada is only 8-9 days sailing time from Asian markets – around half the time from the US Gulf Coast. Bigger vessels could be used to export LNG from the region because there is no need to traverse the Panama Canal, which improves freight economics. However, modular and small-scale LNG have become popular in recent years because of market uncertainty.
Pacific Oil & Gas is tipped as the next company likely to take an FID, on its small-scale (2.1 mtpa) Woodfibre project in Squamish, British Columbia. The company’s president, Ratnesh Bedi, said last week in Singapore that an FID would be taken “within months”. Woodfibre signed a heads of agreement with China’s CNOOC Gas & Power in September for potential offtake of 750,000 tpa for 13 years starting from 2023.
While Woodfibre is small, there are bigger projects at earlier stages of development, such as Steelhead LNG. Steelhead plans to export LNG from Sarita Bay on Vancouver Island and is targeting FID in 2020. The company filed a project description in mid-October with provincial and federal regulators for the Kwispaa project, which is being co-developed with the Huu-ay-aht First Nations, an approach that the company believes is unique. The plant will have a potential capacity of 24 mtpa.
Woodfibre and Steelhead are among nearly 50 projects that have sought export licences from the National Energy Board to export gas, LNG or NGLs from Canada.
Many analysts had been pessimistic about the potential for Canadian LNG exports because the indigenous peoples of Canada, the First Nations, have in the past resisted industrial developments on land they consider sacred. This has also made it difficult for pipeline projects to get approval. Now that the First Nation hurdle has apparently been cleared, other Canadian liquefaction projects are likely to follow more quickly.
Canada could be ready to export as much as 60 mtpa of LNG from its east and west coasts by 2030, but there is a risk that the new capacity will scupper the recovery in prices that is expected as LNG demand catches up with the supply overbuild.
New projects will need to have buyers signed up if they are to attract investment, but the number of competing LNG sources worldwide may encourage buyers to rely on short-term or spot supplies. New long-term contracts may be difficult to negotiate given market uncertainty over the level of future supply and Canada’s inexperience in LNG trading.
LNG Canada is led by Shell, but with several LNG consumers among the investors – including Petronas, PetroChina, Kogas and Mitsubishi. The inclusion of buyers as equity holders may be a model for future projects to succeed.
This conference had three big takeaways for me:
Canadian LNG is no longer a pipe dream. It will happen, and it will probably be on a big scale. The Shell FID gave a clear signal that, despite the complex permitting process, it can be done. A Canada spotlight panel reckoned that Canada could have 5-12 liquefaction projects up and running by 2030, on both the east and west coasts. Exports will be of the same magnitude as those from the US, Qatar or Australia.
LNG in shipping is becoming a reality. Shipyards are busy preparing vessels for the IMO 2020 regulation, but older vessels will be scrapped rather than retrofitted. The next generation of boats will be dual-fuelled or LNG ready, but the yards also have orders for LNG-fuelled vessels from barges to tankers. What we are seeing now is the seeds of a new industry. This is no longer something that is waiting to happening, it is happening now.
Islands are getting smart about energy. Advising SIDCs on fuel supply has always been my idea of a dream job, and I met a gentleman who was doing just that over lunch. LNG is the fuel of choice, as it ticks all the boxes: lower carbon than diesel, energy intensive, resilient and with lower investment cost than alternatives such as energy storage.
After a conference, it’s important to think about what was not said, as well as what was said. Were there elephants in the room that no-one talked about? Yes. A whole herd of them. Here are just two:
The benefits of LNG vs diesel are crystal clear, but I felt that many in the gas industry were in denial about the potential for energy storage. Maybe batteries are the next big story, despite all the skepticism. Lithium has already had its first supply shock, after prices soared above $20,000/t a couple of years ago because supply couldn’t meet demand. The battery brigade are already looking at lithium alternatives such as selenium, costs are declining, and battery life and range improving. It cannot yet replace gas as a backup fuel for intermittent renewables, but by 2030? Perhaps.
King Coal has lost its crown, but no-one seems to entertain the idea that coal might make a significant comeback. I never understood the idea of Clean Coal, but if Carbon Capture and Use (CCU) were possible on a large scale, it would be a game-changer. Researchers are looking into ways to solidify emissions and potentially also finding uses for the solids. The dash for gas in China and India has been driven as much by air quality concerns as GHG emissions. CCS as a carbon disposal technology remains out of reach, but CCU could be a game-changer.