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One done, more to come
LNG Canada reinforces hope that hurdles can be cleared for more projects to coasts
Gary Park for Petroleum News
Final approval of the massive LNG Canada project has spread an upbeat mood through the rest of the Pacific and Atlantic LNG sector.
Final approval by the Shell-led consortium and its four Asian partners to proceed with the C$40 billion LNG Canada plan to ship up to 3.4 billion cubic feet of LNG across the Pacific by the mid-2020s has, in the view of pro-industry leaders, set the stage for the next investment cycle.
Two more ventures are on the verge of proceeding in the next six months - Pieridae Energy’s C$10 billion Goldboro project in Nova Scotia and Woodfibre’s C$1.6 billion operation in British Columbia
Pieridae Chief Executive Officer Alfred Sorenson told the Financial Post his company expects to close its merger with Calgary-based natural gas producer Ikkuma Resources within the next month and make a final investment decision “shortly after” allowing the first export of gas from Western Canada to Europe.
He said LNG Canada has restored some confidence in the marketplace “giving our project more credibility. If the economics work for one, they work for others.”
Mark Brown, vice president of business development for Pieridae, said LNG Canada is good for the entire industry.
“Given the global nature of the industry, it sends a positive message to the world that Canada” has again rolled out the welcome mat to capital investment in its resource sector, he said.
Viability of stranded resources Micah Hirschfield, an executive with Bear Head LNG (which could export 1.6 bcf per day) said the Shell consortium’s spending on a terminal at Kitimat raises the viability of exporting Canada’s stranded gas resources from both the West Coast to Asia and the East Coast to Europe.
“The amount of gas being used by LNG Canada barely scratches the surface of more than 300 years of stranded gas,” he said.
“Both Western Canadian producers and European customers recognize the importance of being able to export Canadian gas from both coasts.”
Ray Ritcey, chief executive officer of the Maritimes Energy Association, said the “greatest news is that some of our resources are going to find new ways to market. It’s a really positive decision for all of Canada.”
BC projects Of the five projects that remain active in British Columbia, the Chevron-operated Kitimat LNG (target at exports of 1.3 bcf per day) and Woodfibre LNG, with capacity of a modest 300 million cubic feet per day, are also poised to come on stream.
Kitimat is still re-evaluating its project design in an effort to drive down costs from the original C$3.5 billion estimate.
Woodfibre received a 40-year export license in 2016 for its standalone liquefaction facility and continues to target the first shipments to Asia in 2020.
Company President David Keane said Woodfibre hopes for a “notice to proceed to construction” in the first quarter of 2019.
He said the final touches include an impacts-benefits agreement with the Squamish First Nation and a deal to gain relief from Canadian government anti-dumping tariffs for fabricated industrial components imported from Asia.
The company is also working on an engineering, procurement and construction contract with Houston-based KBR Inc.
Otherwise, Woodfibre carries the added advantage of planning to use electric drives, powered from the BC Hydro grid, to make the LNG. The switch to electric drive means an 80 percent reduction in emissions.
Merger with Ikkuma Goldboro’s hopes of an early green light were bolstered by a recent transaction to merge with Ikkuma, reinforced by a 20-year agreement with Uniper, a German energy firm, to buy half of the project’s permitted output - a contract that comes with a German government-based debt guarantee.
Goldboro might also have access to estimated shale resources of 80 trillion cubic feet in New Brunswick and 69 tcf in Nova Scotia if it can convince the two provincial governments to remove hydraulic fracturing bans.
New Brunswick’s Bear Head LNG project has authorization to export up to 8 million metric tons per year and hopes to gain expanded authority to raise production to 12 million metric tons before it makes a final investment decision in 2019 to meet its timeline to have a terminal up and running by 2023.
Still hanging around the edges is Chevron’s Kitimat LNG proposal, with design capacity of 1.3 bcf per day, and Steelhead LNG, which hopes to build a facility on the west coast of Vancouver Island, though investors are remaining tight lipped on their hopes.
Steelhead President Victor Ojeda said LNG Canada has given international investors and buyers reason to believe that exporting LNG from Canada “is do-able, if it’s done the right way. But it takes a long time to get the first project out of the gate in any new jurisdiction. It is really a survival-of-the-fittest sort of process.”
Possible ‘starting gun’ Energy consulting firm IHS Markit said the decision by Shell and its partners could be the “starting gun” for other project backers to go ahead.
“We will see a renewal in liquefaction projects being approved globally,” said Ian Archer, IHS’s associate director of North American natural gas. “Whether or not Canada gets these projects is still a bit of an open question.”
Andy Calitz, chief executive officer of LNG Canada, reminded an energy conference in Calgary earlier in October of the “long and winding road” facing any LNG proponents, such as the two-year delay it took for his partners to whittle down their costs.
But, unlike other players, LNG Canada is located exclusively in British Columbia, allowing the development of a long-term relationship with affected First Nations and local communities, making the project cost-competitive and the chance to use power from BC Hydro to lower its greenhouse gas emissions.
“Energy projects have so many hurdles to clear,” he said. “We got it in the golden spot of taking” a final invest decision.
Frank Cassulo, president of Chevron Canada, said LNG Canada’s progress is “good for investor confidence. It resonates very strongly across the corporation.”
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