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.