Canada’s gas can compete with LNG

So long as costs are kept under control, United States will need imports from the north

Gary Park

Petroleum News Calgary Correspondent

For all the buzz over liquefied natural gas, there is little chance that rising imports in the United States will displace supplies from the Western Canada sedimentary basin, a Calgary conference heard Dec. 2.

Amid a parade of speakers extolling the value of LNG in answering U.S. demands, Greg Stringham, vice president of the Canadian Association of Petroleum Producers, said Western Canada sedimentary basin gas has the edge over LNG in pipeline infrastructure and proximity.

He estimated Canadian conventional gas could be delivered to market at a cost of C$3.90-$6.05 per thousand cubic feet, while LNG would cost C$4.40-$6.20 before transportation, based on a currency exchange of 75 cents (US) per Canadian dollar.

Stringham said the “demand pull” emerging on the market now will “pull all supplies,” including LNG which is a “very small but very important and growing part of the mix.”

He noted that the United States currently operates four LNG terminals, which handle about 1 billion cubic feet per day of total U.S. volumes of 60 billion cubic feet per day.

For proponents of LNG projects, the challenge is to have faith that natural gas prices will still be high when multi-billion-dollar projects come on stream in about five years.

Even so, Stringham cautioned that operators in Canada must keep an emphasis on their cost structures so that they can keep a hold on their U.S. markets.

Phyllis Martin, senior energy analyst with the U.S. Energy Information Administration, said the growth in gas-fired electrical generating plants is projected to push U.S. gas demand to 35 trillion cubic feet by 2025, outstripping domestic production of 26.4 tcf.

Closing that gap will make LNG imports the “big story,” with net imports accounting for an estimated 2.2 tcf or 19 percent of the incremental gas supply, the EIA forecast.

The U.S. National Petroleum Council, in a recent report, set the bar even higher at 25 percent of the U.S. market by 2025.

Many variables

Richard Foley, case manager from the office of energy projects at the U.S. Federal Energy Regulatory Commission, told the conference that 28 LNG projects are currently on the table, including 20 onshore projects that fall under FERC jurisdiction and eight offshore projects for which the U.S. Coast Guard has jurisdiction. In addition, Mexico has seven proposals, Canada three and the Bahamas three.

He said projects now in-service and approved can deliver just over 5 billion cubic feet per day; if all of the pending applications before FERC and the Coast Guard go ahead they will add another 15 billion cubic feet per day.

Chris Ellsworth, manager of fuels forecasting and market assessments for Pace Global Energy Services, said LNG is “highly competitive” so long as prices don’t drop below US$3-$3.50 per million British thermal units.

Costs could range from US$2 to almost $4 per million Btu depending on factors such as the cost of feed gas, liquefaction, transport and regasification.

The only question facing LNG is how big a contributor it will be to supply, said Hank Petranik, LNG vice president at TransCanada, which recently launched a partnership with ConocoPhillips for a proposed facility in Hartswell, Maine.

John van der Put, TransCanada’s director of LNG development, said that even if the North Slope and Mackenzie Delta projects go ahead, about 7.5 billion cubic feet per day of LNG will be needed in the United States.