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Providing coverage of Alaska and northern Canada's oil and gas industry
June 2011

Vol. 16, No. 26 Week of June 26, 2011

All roads lead to Asia; BC gas producers call for single ROW

Canada’s shale gas producers are talking up joint ventures and some are calling for a “well-orchestrated process,” including the use of a single pipeline right of way to the British Columbia coast, to exploit their vast resources.

Speaking at a Canadian Association of Petroleum Producers investment symposium in Calgary, executives of Encana, Nexen, Penn West Exploration and Progress Energy Resources echoed a similar theme that British Columbia has the supplies and Asia has the demand, positioning Canada to take advantage of the price differential between gas prices of about US$4 per thousand cubic feet in North America and US$8.50-$13 for LNG in Asia.

Encana Executive Vice President Mike Graham said there is a growing appetite for liquefaction terminals on the West Coast of Canada and the United States.

“North America can support a lot of liquefaction and, hopefully, (the result will be) a world price for natural gas like we have a world price for oil,” he said.

“We think (LNG) will lift the price of gas in Western Canada and North America. There’s a big incentive to invest in LNG.”

But Murray Nunns, president of Penn West Petroleum, which has deals with the China Investment Corp. and Japan’s Mitsubishi, said “there’s an ultimate belief that the United States won’t export natural gas because of energy security concerns,” making Canada the most likely “safety valve for North America.”

Industry sources believe Penn West is also involved in joint studies with Shell Canada and Korea Gas Corp. studying LNG exports from British Columbia.

Multiple opportunities needed

Nexen President Marvin Romanow, noting that the industry has already found more gas in British Columbia’s Horn River shale play than exists in all of Alberta, said his company will need to have more than one “monetization source” to develop its 300,000-acre holding in Horn River, with LNG presenting one option.

To pursue that goal, Nexen is talking to companies in Asia, some with expertise in LNG, and attracted “lots of good interest,” he said.

Some of the companies have “sent very capable technical teams” to Canada and “that’s usually a good sign of how serious folks are,” Romanow said.

A joint-venture partner would enable Nexen to “accelerate value recognition” for Horn River “and also bring some cash to the company,” he said.

Michael Culbert, chief executive officer of Progress, which has a tentative C$1 billion upstream deal in place with Malaysia’s Petronas for joint-venture development of three British Columbia gas properties and possibly building an LNG terminal, called for the streamlining of regulatory processes to capture a window of market opportunities in Asia.

He said the Canadian and provincial governments would be wise to consider joint regulatory proceedings for multiple projects and take an active role in identifying LNG terminal locations at ports such as Kitimat and Prince Rupert.

Culbert told Petroleum News the only projects of any material size that are already on the books are the Apache-operated Kitimat facility and indications that Shell Canada might emerge with a plan.

Now Progress and Petronas have surfaced with plans for a joint-venture LNG feasibility study, which could start in the final quarter of 2011 and extend over 18 to 24 months, he said.

Culbert said the North Montney upstream joint venture is intended to prove up the gas reserves and productivity that will be needed to backstop an LNG facility.

He said the LNG study will have a “fairly flexible” timeline as the partners select a terminal site and pipeline routes, although Petronas, with an 80 percent stake in the LNG joint venture, will be “very much the driver.”

Culbert: Strong worldwide LNG demand

Culbert is not unduly concerned about the apparent lead Australia has over other suppliers in gaining access to Asian markets, saying the demand for LNG is “so strong worldwide” and Canada has the advantage of shorter shipping routes to Asia.

Petronas is a “very positive partner” because it has “long-term contracts in place and is a very material supplier to a lot of companies in Asia,” he said.

Culbert does not believe the opposition to Enbridge’s planned Northern Gateway oil sands crude pipeline to Kitimat will undermine LNG proposals.

“I think it’s a reality that natural gas is easier to transport, both in pipeline form as well as shipping form,” he said.

In addition, he said Progress has been working closely with First Nations in the Montney area for the past 10 years and has kept them informed about the Petronas deal.

Culbert estimated Western Canada’s gas fields could support LNG exports of up to 4 billion cubic feet per day, which is only 1.5 bcf per day short of the gas expected to flow from the Horn River and Montney regions by 2020.

Shell Canada President Lorraine Mitchelmore said her company, which is working with Mitsubishi, is a “strong believer that it is really essential” to export Canadian gas offshore.

—Gary Park






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