Providing coverage of Alaska and northern Canada's oil and gas industry
March 2019

Vol. 24, No.10 Week of March 10, 2019

LNG shuffle goes on

Seven gas producers, accounting for 20% of Canada’s gas output, form consortium

Gary Park

for Petroleum News

Another of British Columbia’s hoped-for LNG projects has gone up in smoke, leaving only one survivor from the wreckage out of more than 20 active proposals only three years ago.

But out of the ashes a fresh scheme is taking shape involving a partnership of three identified companies and seven other natural gas producers, representing a combined 20 percent of Canada’s gas output and 40 percent of gas byproducts such as propane, butane and ethane.

The latest venture is led by Seven Generations Energy, Peyto Exploration and Advantage Oil & Gas, who are targeting LNG shipments that are endorsed by gas producers in British Columbia and Alberta.

Although the other seven players were not identified, Canadian Natural Resources, Canada’s leading producer, and Encana, the third-largest producer, said they had not been involved in any negotiations.

Operations by 2026

The consortium hopes to start operations by 2026, by which time LNG demand is forecast to outstrip supply. To achieve that target the partners would need to make a final investment decision by mid-2021.

The idea of producers joining forces has been under consideration for two years since a series of major LNG proposals started crumbling, said Cameron Gingrich, director of gas services at Solomon Associates.

However, he warned that new greenhouse gas emission rules being floated by the British Columbia government that would require future LNG projects to be powered by electricity rather than gas-fired plants could make a project uneconomic.

Gingrich said he was not surprised when ExxonMobil and its subsidiary Imperial Oil cancelled their LNG plans after the new emissions plan was announced, choosing instead to work on an LNG project in Texas.

No solo LNG ventures

Darren Gee, chief executive officer of Peyto, told the Financial Post that no one company is so large that it can consider a solo LNG venture.

He said the new partnership is hoping to revive one of British Columbia’s mothballed ventures and eventually attract a larger partner with “enough capital to fund construction. We (the 10 producers) wanted to get the ball rolling.”

The consortium has hired Greg Kist, president of the failed C$36 billion Petronas-led Pacific NorthWest LNG proposal, as a consultant to explore options.

Also abandoned recently was the C$28 billion, two-phase Aurora LNG project operated by Nexen, a subsidiary of China National Offshore Oil Corp., which was awaiting a verdict on a British Columbia environmental assessment certificate, allowing it to start construction and start shipping up to 25 million metric tons a year by 2025.

Commodity analyst Martin King of GMP FirstEnergy said he was not surprised by the string of failures given the collapse of world LNG prices to US$6 per million British thermal units when proponents were counting on capturing US$14-$18.

AltaCorp Capital data showed that Alberta gas was selling for only C$2.28 per thousand cubic feet, compared with C$11.88 in Japan.

Western Canadian gas prices have also faced worsening discounts in recent years compared with U.S. benchmarks at Nymex and Henry Hub, but there is a strong belief that an LNG export project on the British Columbia coast could secure a multiple of those prices in Asia.

Steelhead LNG delayed

The latest plan to stumble was Vancouver-based Steelhead LNG, which “ceased current project work” on its Vancouver Island project called Kwispaa LNG.

Steelhead Chief Executive Officer Nigel Kuzemko said the timing for a final investment decision, originally scheduled for 2020, has been delayed indefinitely.

He said Steelhead has now shifted its focus to building a natural gas pipeline from northeastern British Columbia gas fields to Vancouver Island.

Kuzemko said that if the pipeline attracts support from First Nations along its route there might be chance to revive Kwispaa.

Steelhead formed a partnership two years ago with the Huu-ay-aht First Nation and only four months ago announced applications had been filed with the British Columbia and Canadian environmental assessment agencies, having already obtained National Energy Board licenses to export 24 million metric tons a year.

In an open letter the Huu-ay-aht leadership said uncertainty around pipeline development in Canada has raised concern among industry participants and in financial markets.

But the First Nation said it remains committed to creating employment and generating revenue opportunities for its community.

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