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Asian money eyes Canada PetroChina, Petronas intensify pressure for action on LNG, crude export projects; Canada works regulatory and workforce constraints Gary Park For Petroleum News
Billions of dollars are flowing across the Pacific into development and distribution of Canada’s oil and natural gas resources and billions more are set follow.
In the latest moves to accelerate the opening of Asian markets, PetroChina is bidding to help build and own part of Enbridge’s C$5.5 billion Northern Gateway project, Malaysia’s Petronas said it wants to spend C$5 billion more securing Canadian natural gas supplies, while Japan’s Mitsubishi and South Korea’s state-owned Korea Gas are hoping for an initial agreement in April on a Shell-operated LNG project that could cost US$12 billion.
As industry plans unfold at a rapid rate, the Canadian government is answering the call for help to accelerate regulatory approvals and to head off a looming shortage of skilled tradespeople.
Immigration Minister Jason Kenney said in a Calgary speech that his government will create a separate entry arrangement by the end of 2012 to allow “tens of thousands” of foreign workers to find jobs at resource-based projects, notably in the LNG and oil sands sectors.
That coincided with confirmation from Natural Resources Minister Joe Oliver of a 20-year export permit for 230,000 million cubic feet per day of liquefied gas by the BC LNG Export Co-operative, adding to an earlier license for Apache-operated KM LNG Operating General Partnership, to convert 1.4 billion cubic feet per day into LNG.
Oliver, who is spearheading his government’s promise in March to streamline environmental reviews of major energy projects, said the LNG permits “show the world we are serious about getting our energy resources to market” as Canada pursues its goal of becoming a “global energy super-power.”
He said that the government “does not want any project to proceed unless it’s safe for the environment and safe for Canadians.”
Pressure grows for outlets The pressure to find new outlets for Canadian gas is building as North American prices shrink, threatening the ability of producers to remain in business long enough to capture a chunk of the Asian markets.
That prospect was reinforced by Spectra Energy Chief Executive Officer Greg Ebel, who said Eastern Canada could soon dramatically curtail its shipments of gas from Western Canada in favor of buying gas from the Marcellus shale in Pennsylvania and New York.
He said Union Gas, Spectra’s Ontario-based subsidiary, is seeking expressions of interest from producers and customers to expand a pipeline that was previously used to export Western Canadian gas into New York state and is now being reversed to tap into production from the prolific Marcellus shale.
In a speech in Ottawa and an interview with the Globe and Mail, Ebel said he expects the development of U.S. shale gas to cut deeply into Canadian exports into the U.S. Northeast and even erode traditional markets in Ontario and Quebec.
“With the price of natural gas in New York and Pennsylvania versus the delivered cost of gas, it’s just very difficult for the Western Canadian gas to compete in some markets in the United States,” he said.
EIA forecasts exports to US to drop The U.S. Energy Information Administration buttressed that view forecasting that Canada’s gas exports to the U.S. will decline by 62 percent over the next 25 years, having already fallen to 6 billion cubic feet per day from 9 billion cubic feet per day in the last five years.
Ebel said the loss of sales in eastern North America make it even more urgent for Western Canadian producers to advance plans for LNG exports to the Asia-Pacific region.
Spectra itself is investing C$1.5 billion on its British Columbia gas transportation and processing system and is looking for firm shipping commitments that would support an expansion of its pipeline to the Pacific coast.
Against that backdrop, PetroChina and Petronas have positioned themselves to play key roles in developing Alberta’s oil sands and Western Canada’s shale gas.
PetroChina in ‘open bid process’ PetroChina has entered an “open bid process” by expressing interest in building the 525,000 barrels per day Northern Gateway pipeline and is pondering an equity stake in the project, Enbridge Chief Executive Officer Pat Daniel told the Financial Post.
He said PetroChina has “made the point to us that they are very qualified in building pipelines and we will take that into consideration when we are looking for contractors.”
However, if PetroChina were to acquire an ownership stake it would have to purchase an equity interest from one of Northern Gateway’s 10 existing owners because there is no opportunity to expand that group, Daniel said.
What PetroChina could bring to the table is access to a workforce of about 2 million and cheaper labor costs, which would ease growing concerns over Canada’s ability to proceed with its slate of potential LNG and crude oil export pipelines and terminals and expansion of the oil sands, although there could be anxiety over the transfer of Canada’s resource assets to Chinese owners.
British Columbia’s powerful labor unions might also raise objections to the use of non-unionized foreign workers and environmentalists and First Nations would likely intensify their opposition to shipping Canada’s oil and natural gas across the Pacific.
PetroChina was involved as a prospective 49 percent equity partner in Northern Gateway until 2007 when it withdraw, accusing Canadian governments and producers of hindering its attempts to aggregate 200,000 bpd of production for the pipeline.
Petronas seeks to invest C$5 billion Petronas pulled a surprise when its Chief Executive Officer Shamsul Abhar Abbas told news agency Bloomberg that has company was seeking an investment of C$5 billion in Canadian gas plays as part of its strategy to “grow big in Australia and Canada.”
Petronas paid C$1.07 billion last year to acquire a 50 percent stake in 150,000 acres of Progress Energy gas properties in British Columbia’s North Montney play and was ready to take 80 percent ownership of a related LNG export terminal on the British Columbia coast.
At the request of the Toronto Stock Exchange, Progress issued a statement saying it was not involved in any negotiations with Petronas to enter into business transactions beyond its existing joint-venture deal.
But it said results of an LNG feasibility study with Petronas should be released no later than September.
Michael Culbert, chief executive officer of Progress, said the LNG study is focused on a two-train facility with a total capacity of 7.4 million metric tons a year, requiring 560,000 million cubic feet per day of gas feedstock.
He said an LNG scheme of the size envisioned by Progress and Petronas would need proven reserves of 9 trillion cubic feet to supply a liquefaction plant for 20 years.
Progress currently has 1.9 tcf equivalent of proved plus probable reserves, 58 percent assigned to the North Montney play, and a market capitalization of C$2.5 billion. It also holds 450,000 acres of liquids-rich properties in northwestern Alberta’s Deep Basin.
35.2 tcf of dedicated reserves Eric Nuttall, portfolio manager at Sprott Asset Management, said the three announced LNG export projects for British Columbia will need liquefaction capacity of 4.2 billion cubic feet per day, or 35.2 tcf of dedicated reserves.
To book those reserves companies will have to “drill aggressively or buy aggressively,” he said, estimating that would require a combined 626 wells a year over three years in British Columbia’s Montney and Horn River plays.
A source in the British Columbia government said it was unlikely Petronas would signal a possible acquisition within the next three months unless negotiations were well advanced, otherwise it would only be driving up share values of prospective candidates.
He said Petronas may have issuing an early signal to Canadian lawmakers and regulators of its interest in making an outright takeover bid.
Under Canadian legislation a foreign investment review is required for any purchase valued at more than C$312 million.
David Collyer, president of the Canadian Association of Petroleum Producers, said that “diversifying markets for Canadian oil and natural gas products is vital to ensuring Canada continues to grow its production and receive full value for its natural resources.”
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