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Vol. 15, No. 36 Week of September 05, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

LNG hopes evaporate

One of 10 proposed Canadian import terminals is working; one to be export project

Gary Park

For Petroleum News

Ten green bottles hanging on the wall …” goes the old song for children. Let’s make that “ten LNG projects” that once dangled the prospect of LNG imports to Canada for regasification into billions of cubic feet of gas for sale to North American customers by about 2015.

Not anymore. One is up and running and one has been converted to an LNG export venture.

The rest have either fallen off the wall, or, in the industry jargon, entered a “calm period.”

Low gas prices, weak industrial demand, galloping shale gas production and an inability to secure LNG supplies have produced a perfect storm that jolted the ambitious proponents awake.

The only operating import facility is the Canaport terminal in New Brunswick, operated by Spain’s Repsol as 75 percent owner and Irving Oil, a 25 percent partner.

It started importing LNG cargoes from Trinidad and Egypt last year, with storage capacity of 10 billion cubic feet and send-out capacity of 1.2 bcf per day. How much is actually being delivered to the U.S. Northeast is not known, but Repsol Energy Canada has yet to feel a squeeze from shale gas that would jeopardize its existing market, although it has left open the option of selling its LNG elsewhere.

Some action on Kitimat

The only other LNG project that shows any traction in Canada is the Kitimat LNG joint venture by Apache and EOG Resources, which was switched from an original import plan to an export facility for 700 million cubic feet per day because of a forecast surge in gas volumes from British Columbia tight and shale gas regions along with higher prices in Asia.

In addition to Apache and EOG, there have been hints of four other memorandums of understanding with prospective gas suppliers, reducing the risk of exploring for and developing Canadian gas at a time when the market outlook in the U.S. is so grim.

Although the Kitimat partners are engaged in what they call a “methodical” planning process they have candidly said there is a long road ahead to secure oil-indexed LNG contracts and buyers, likely in Asia.

For the rest, the challenges are too much, despite the optimism expressed by Calgary-based consultant Ziff Energy Group earlier this year that global gas demand will recover, creating a shortfall of LNG supply in 2014.

A Ziff report said front-end engineering is under way for some projects in Australia, Indonesia and Algeria, but others in Nigeria and Russia have little appeal to investors because of the political and investment climates in those countries.

Middle East best prospect

The report forecast that most liquefaction projects over the next four years will be built near stranded gas reserves in the Middle East, primarily Yemen and Qatar, with additional supplies from Australia, augmented by smaller volumes from Angola and Peru.

Ed Kallio, Ziff’s manager of gas consulting, said increasing LNG demand should see new supplies “absorbed quite quickly” by 2014, leading to a tightening of LNG available to North America.

“Because many Asian and European long-term contracts are linked to oil prices, we should see more traditional parity between gas and oil pricing,” he said. “Gas prices are likely to move higher when LNG gets tight worldwide.”

Kallio said demand should double in Asia over the next decade and Europe will experience strong growth, along with the new markets of India, Pakistan and China, and traditional growth in Japan and Korea.

He said that even if North American shale gas production grow to 18 billion-20 billion cubic feet per day by 2020 from its current 8 bcf-9 bcf per day, conventional, tight and coalbed methane gas will have to be augmented by LNG to balance the continent’s demand for about 70 bcf per day, which should rise to 78 bcf per day by the end of the decade.

The Ziff report estimated LNG supply will exceed 50 bcf per day by 2020, with more than 10 bcf per day added by 2014 from a dozen projects.

Shale gas changes equation

However, Ziff Vice President of Gas Services Bill Gwozd concedes that, although conventional gas production is declining and market demand is rising, the emergence of shale gas has changed the equation, forcing most LNG proponents to either stop, or reduce work.

The latest to be shelved is the C$900 million Maple LNG project by a unit of Dutch-based 4Gas, along with its partner Suntera Canada.

General Manager Derek Owen said plans for a three-tank terminal about 120 miles east of Halifax, Nova Scotia, will not proceed due to a lack of demand in Canada and problems obtaining supplies for regasifying into 750 million cubic feet per day.

An option to acquire land from a municipal government has been dropped along with the engineering phase. The Maple LNG gas might have provided feedstock for a proposed petrochemical plant by Keltic Petrochemicals, whose President Kevin Dunn said higher gas prices in Europe and Asia are seeing possible LNG shipments being diverted from North American terminals.

Owen said federal and provincial environmental permits will remain valid until 2011 and 2012.

The rest of the pack

Of the other projects:

• In early 2007, Anadarko took a US$111 million charge to write off its investment in the Bear Head project that was originally supposed to send out 1 bcf per day to the U.S. and eastern Canada in 2008.

• Newfoundland LNG, which planned a transshipment and storage terminal, appears to have entered hibernation after an initial flurry of announcements in 2007.

• Quebec-based Energie Grande-Anse planned to start service by mid-2012, with initial send-out capacity of 1 bcf per day. Proponents say the project is now in a “calm period.”

• The C$840 million Rabaska, Quebec, project by Enbridge, Gaz Metro and Gaz de France hit a familiar wall, unable to obtain long-term LNG commitments and refuses to make any more moves until it does.

• Similarly, the Gros Cacouna regasification terminal planned for Quebec by Petro-Canada (now Suncor Energy) and TransCanada is tinkering with construction costs while it continues the elusive search for a company willing to deliver gas to North America after Russia’s Gazprom iced plans to be the major supplier.

• WestPac LNG is in a holding pattern, three years after scuttling plans for an import terminal near Prince Rupert on the British Columbia coast and announcing plans for a C$2 billion transshipment terminal and gas-fired power generation plant on Texada Island between Vancouver Island and the B.C. mainland.

• Teekay Corp., a storage and transportation company, abandoned plans earlier this year for a floating gas liquefaction plant near Kitimat, despite an agreement with Merrill Lynch Commodities to develop the facility.

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