Canada Taps LNG Export Market

Brian Hicks

Written By Brian Hicks

Posted April 4, 2013

Canada is making a big push to become North America’s premier liquefied natural gas (LNG) exporter to the lucrative Asian market.

With many experts believing that the shale gas boom prices have bottomed out, and with swirling talks around the likelihood of inflating costs, many companies are vying for a slice of the gas bonanza that is circulating around the globe.

British Columbia, Canada’s western province, is harboring most of the LNG export activity in North America. The province hopes to liquefying 6 billion cubic feet per day, though some believe this could dwindle down to 4 billion or as low as 2 billion, Petroleum News reports, as the price of materials skyrockets and a limited labor force proves inadequate for operations.

And with uncertainty surrounding those two factors heading into the future, now may be the best time to strike. No matter which way the pendulum swings, it’s a risk worth taking. At the prices that some Asian importers are paying for supplies, it is a $150 billion a year market just waiting to be tapped.

LNG terminal“LNG is the biggest and highest-risk piece of the global energy business these days,” Mikkal Herberg of the National Bureau of Asian Research said to The Globe and Mail. “These are enormous projects and huge bets on the future in an uncertain pricing and supply environment.”

China and Japan hope to drive down the premium price of the commodity that currently has Asian customers paying more than four times the average natural gas contract in North America.

The high LNG prices in Asia and the uncertainty in this potentially thriving market has companies positioned in British Columbia jumping the gun a little faster than usual, as they all vie for position.

As it sits right now, Canada is a good two years from shipping LNG to any Asian markets; it’s all about solidifying a position right now.

That doesn’t mean there isn’t a whole lot of action to be had. Malaysia’s Petronas recently took over Progress Energy (NYSE: PGN), which will triple its rig count in its British Columbia Montney shale this year and plan for its first shipment by 2018, according to Petroleum News. The subsidiary will also increase its barrels of oil equivalent (BOE) from 50,000 to 80,000 BOE per day in that time, and it is mulling over the idea of buying 2 plants.

But for now, Michael Culbert, who remains chief executive officer of Progress after its Petronas takeover, told Petroleum News the plan is to “prove up reserves, prove up the contingent resource and then, ultimately, we’ll go back in and develop that resource for production.”

And that seems to be the consensus for other companies in western Canada; all have a mind set to focus on future supplies to Asia.

LNG exporters to the west that do gain approval to make shipments will do so from Canada’s Pacific Coast to destinations such as Japan and China.

LNG Export Licenses

Canada has so far issued three LNG export licenses with a total export capacity of 4.66 billion cubic feet of gas , according to Bloomberg—more than twice the 2.2 billion cubic feet that the U.S. has permitted.

The U.S. has been much more hesitant to export its LNG supply. There is much debate over fears it would drive up domestic prices, which presently can’t be beat.

Of course, as a result, big time players like Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) are moving their focus to Canada.

California-based Chevron CEO John Watson said, according to Bloomberg, “One of the things attracting us to Canada is that it’s already a natural resources exporting country. We’ve decided that Canada is going to be the focus of our North American LNG efforts.”

BG Group Plc (LON:BG), a U.K. LNG producer that has operations in the Middle East and Caribbean, has also put its name in to obtain export licensing in Canada. AltaGas Ltd (TSX: ALA), Idemitsu Kosan Co., CNOOC Ltd. (NYSE: CEO), and Inpex Corp. (TYO: 1605) are some others that are eyeing projects in British Columbia.

The Canadian government is much more relaxed on regulating LNG than its neighbors to the south; both the U.S. and Canada experienced similar success with the shale boom, but Canada has approved twice as much LNG capacity for export and is positioning itself as the go-to source for LNG energy needs.

An LNG terminal is being constructed right now north of Vancouver, and it will see its first shipments of fuel some time in 2015, eight months before the first continental U.S. plant is even set to begin construction.

According to Bloomberg:

“’Petronas looks towards Canada’s stable fiscal and regulatory regime as a positive environment for investments of this magnitude,’ as well as the country’s ‘vast’ gas supply and short shipping times to Asia, Michael Culbert, chief executive officer of the company’s Canadian unit, said yesterday in an e-mail.”

The U.S. is also playing the waiting game to see how energy prices are affected by overseas sales. Currently, there are 19 proposed U.S. LNG projects awaiting the go-ahead for exporting, the longest of which has been for 28 months, according to Bloomberg.

Asia is the worldwide leader in the growth for LNG demand. Canada is poised and positioned to take full advantage of that growing need, but while Asia is currently paying premium prices to import the commodity, it is uncertain how supply and demand will affect the market in the future.

Right now, the U.S. is sitting on the sidelines, but we could get in the game at any moment and shake the industry up. Other competitors who are aiming for the same market share as Canada are Russia, Africa, and Australia, but their supplies don’t quite compare to that of North America.


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