Russians choose Canadian LNG terminal

Gary Park

For Petroleum News

Russian gas giant Gazprom has taken the next step in playing one Canadian-led consortium off against another as it dangles the rights to secure LNG supplies for rival LNG projects in Quebec.

First it was a partnership of Petro-Canada and TransCanada that believed it had the edge in locking up a deal with Gazprom for LNG shipments from Russia’s Shtokman field — a hope that disintegrated earlier this year when Gazprom abandoned plans for a US$3.5 billion liquefaction plant near St. Petersburg.

Now a consortium of Enbridge, Gaz Metro and Gaz de France has announced a supply deal marking Gazprom’s first major foray in North America.

In return for supplying all of the gas needs for the C$840 million Rabaska project from the 135 trillion cubic foot Shtokman field, Gazprom will take an equity stake in Rabaska.

Neither side will discuss the size of that stake or the other financial details of the agreement.

But Gazprom deputy chairman Alexander Medvedev said the decision to choose a Canadian terminal over one in the U.S. was tied solely to economic issues.

“We made the choice based on economics of the particular projects,” he said.

Medvedev said the development of new markets and products is an “important component” of the company’s global LNG strategy.

“Delivering LNG produced at Shtokman to new Atlantic basin markets is keenly important to us,” he said.

Stephen Letwin, Enbridge’s executive vice president of gas transportation and international operations, said Rabaska will “deliver the critical infrastructure needed to bring an important new source of natural gas supply to Ontario and Quebec. Gazprom’s involvement gives strong momentum to advancing this project.”

He said tankers from Shtokman can reach the Rabaska terminal on the St. Lawrence River in winter 11 days faster than they can get to the Gulf of Mexico.

So long as a formal deal is signed, construction of the terminal, which has Canadian and Quebec regulatory approvals, could start this year. It is scheduled for completion in 2014, coinciding with the first deliveries from Shtokman, and designed to send out 500 million cubic feet per day to Eastern Canadian and U.S. customers.

Bob Hastings, an analyst with Canaccord Adams in Vancouver, said gaining access to an alternative gas supply has been more critical for Rabaska than securing approval for a terminal site.

But one analyst is offering a guarded assessment of the Gazprom-Rabaska agreement.

Larry Pendill, with Edward Jones in St. Louis, said that based on the Russians “past history” there is still a risk they could back out.

“I’d certainly have to say that this is not a done deal,” he said.

What isn’t known is how Rabaska succeeded where Petro-Canada and TransCanada failed in their attempts over four years to woo Gazprom, with strong backing from two Canadian prime ministers and former Russian president Vladimir Putin.

Petro-Canada said it has not given up the hunt for supplies to fuel the planned C$1 billion Gros Cacouna terminal.