Korea Gas, the world’s largest importer of LNG, is quietly scouting the Canadian Arctic amid speculation that the state-owned company has plans other than shipping natural gas by pipeline to southern North American markets.
Chad Yeng, general manager of Kogas Canada, told the Globe and Mail that if the proposed Mackenzie Valley pipeline gets sidelined his company is open to the possibility of converting the gas to liquefied natural gas for shipment to Asian markets.
Kogas has already taken a minor stake in one Arctic venture, paying C$20 million upfront for a 20 percent stake in a Mackenzie Delta gas field owned by MGM Energy and committing to another C$10 million if the resources are either commercialized under the Mackenzie Gas Project or some other venture.
As well, Kogas is participating in a joint venture with Encana, agreeing to invest US$1.1 billion over five years to develop gas reserves in northeastern British Columbia.
It is also studying the possible construction of an LNG export terminal on the British Columbia coast in partnership with Royal Dutch Shell and Japan’s Mitsubishi.
Visit earlier this yearThe Arctic LNG scheme has so far reportedly involved a visit earlier this year to Inuvik on the Mackenzie Delta by Kogas executives, including Chief Executive Officer Kangsoo Choo.
The Delta gas reserves backing the Mackenzie Gas Project are almost 6 trillion cubic feet, while the onshore and offshore Delta region has potential resources of up to 26 tcf.
But many observers feel that the longer the regulatory and corporate decision-making process drags on, the less likely it is that the MGP will proceed against a flood of gas from North American shale sources.
However, the emergence of plans to export LNG from Canada to Asia has suddenly presented an alternative to producers faced with a surplus of gas from northern British Columbia and Alberta.
Kitimat seeks NEB approvalThe Kitimat LNG project, a partnership of Apache, Encana and EOG Resources, is seeking National Energy Board approval for a project that could ultimately handle 1.4 billion cubic feet per day of gas; a joint venture by the Haisla First Nation and LNG Partners plans to process 125 million cubic feet per day; and the Shell-led consortium is examining the feasibility of a third scheme.
Yang said Kogas is exploring the possibility of building an LNG port, possibly at Tuktoyaktuk on the Beaufort Sea, reviving preliminary studies conducted in the 1970s, followed in 1980 when PetroCanada, then a state-owned company, and others floated the idea of an Arctic pilot project to ship LNG to southern North American markets.
In 2004, the Canadian Energy Research Institute concluded that High Arctic gas could be developed using LNG, compressed natural gas or gas-to-liquids, which it estimated could generate a 15 percent minimum rate of return from 10.2 tcf of gas-in-place on Melville Island.
Then in 2007 PetroCanada (before it was taken over by Suncor Energy) started exploring ways to develop its estimated High Arctic resources of 12 tcf.
It established a small team to examine the feasibility of LNG shipments, while acknowledging the challenges of procuring gas in such a harsh climate and sensitive environment. But the results of that work were never made public.
Although there is agreement among naval experts that LNG tankers could operate in Arctic waters, the costs would be daunting, with cost estimates for hull-reinforced Polar class tankers ranging around C$700 million.
Largely bypassed in this discussion is whether Canada should even allow its gas resources to be exported to Asia.
Hal Kvisle, former chief executive officer of TransCanada, said Arctic gas should first be available for Canadian use, then for North American consumption under the North American Free Trade Agreement.