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US LNG exports vital for Canada
Gary Park For Petroleum News
Oregon is shaping up as the doorway to Asia for Canadian natural gas producers who are struggling to find outlets for their production.
Canada’s National Energy Board has cleared the way for one Oregon LNG project to use up to 1.55 billion cubic feet per day of feedstock gas from Western Canada and is expected to decide soon on another application to use 1.3 bcf per day.
Veresen, a Calgary-based diversified energy infrastructure company, has secured a 25-year permit from the NEB to tap into Western Canadian gas for its $6.8 billion Jordan Cove operation, but it is still waiting for a ruling from the U.S. Department of Energy on its proposal to ship LNG from the U.S. West Coast.
Next in line for the NEB is an application from the Oregon LNG project, which is proposed by Leucadia National Corp., a diversified holding company based in New York.
Canadian gas sidesteps US export issues Gaining access to Canadian gas brings the proponents closer to reality by enabling them to sidestep the U.S. government’s gas export threshold of 12 bcf per day.
So far U.S. regulators have given the go-ahead to six LNG projects with a combined capacity of 8.5 bcf per day, to ship gas to countries that do not have free trade agreements with the U.S.
U.S. businesses, especially petrochemical companies, have raised concerns about risks they face if large-scale exports of shale gas are allowed from the Eagle Ford and other U.S. basins and have warned that U.S. domestic gas prices could increase as a result.
The NEB has also approved export permits for seven LNG projects on the British Columbia coast which could consume about 15 bcf per day of gas supplies, noting it is not yet concerned that exports of those volumes would undermine Canada’s energy security.
Although NEB permits require final ratification from the Canadian government, the regulator has been unhesitating in estimating that the gas assigned to LNG exports would be surplus to Canadian requirements for the 25-year permit periods.
Robert Kwan, an analyst with RBC Capital Markets, said in a note to clients he did see approval of the NEB permit as a “major hurdle,” suggesting that obtaining U.S. Department of Energy permits for non-FTA countries as a much tougher obstacle.
Lifeline for producers Among producers, LNG shapes up as their lifeline, with export pipelines from British Columbia and Alberta to the U.S. carrying about 8.2 bcf per day of available capacity of 15 bcf per day, with Ziff Energy Group forecasting those levels will drop to about 5 bcf per day by 2020.
Canadian gas exports to the U.S. were down to about 2 bcf per day last November, off one-third from the peak in 2007, while benchmark prices at the AECO trading hub in Alberta have been dragged about $1 per thousand cubic feet below the U.S. benchmark at Henry Hub over the past year.
Don Althoff, chief executive officer of Veresen, told the Financial Post that the Jordan Cove project offers some relief to mid-size Canadian producers.
“It will utilize existing infrastructure to take advantage of Canadian resources and we think it is a great Canadian project — it just happens to be in a different part of North America,” he said.
Veresen is looking for investors and partners for its project and has secured heads of agreements with three unnamed Asian buyers.
The company hopes to have its off-take contracts in place this fall, allowing a final investment decision by either late 2014 or early 2015, with the first LNG consignments targeted for shipping in 2019.
If the venture goes ahead, gas will be shipped through the TransCanada pipeline network and a 230-mile connector pipeline, jointly owned with Williams Partners, in Oregon which will gather gas from Western Canada and the U.S. Rockies.
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