Bruised Canadian Energy Sector Sees LNG Project as First of Many
(Bloomberg) -- While the LNG Canada facility that was greenlighted Tuesday won’t be operating for years, the battered Canadian energy industry is already hoping that it will be the first of many such plants on the country’s Pacific Coast.
“If you get one plant through, you’ll get a second and third plant to follow much easier,” said Steve Laut, vice chairman of Canadian Natural Resources Ltd., one of the country’s largest natural gas producers. “It gives confidence to the other proponents."
The C$40 billion ($31 billion) LNG Canada project will have a leg up on its competition on the U.S. Gulf Coast and East Coast, because of the shortened trip to customers in Asia. It’s the biggest new liquefied natural gas facility approved globally since Russia’s Yamal project in 2013.
“The momentum behind LNG Canada reflects the drastic improvement in the LNG market over the past 12 months, driven by buoyant demand in China,” Dulles Wang, director of North America gas for Wood Mackenzie Ltd., said in a statement. “We believe 2019 could be the busiest year” for companies moving forward with LNG project investments.
LNG Canada may show other companies that the Canadian government is supportive and that they won’t be bogged down with regulations and approvals for too long, Laut said at an event in Banff last week, before the announcement.
The benefits of the first project getting the go-ahead could extend beyond the natural gas sector and into other areas of the energy industry as well, Tourmaline Oil Corp. Chief Executive Officer Michael Rose said. Canada’s energy industry has had a tough few years as pipeline bottlenecks reduced prices for its oil and natural gas, leading to slower production growth and lower capital spending than in other countries.
“It certainly improves the psychology,” Rose said last week. “It shows to other companies making large financial commitments that perhaps Canada is investable.”
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Hours after LNG Canada was officially confirmed, TransCanada Corp. said it will proceed with construction of its C$6.2 billion Coastal GasLink pipeline to connect Kitimat, British Columbia, the site of the LNG plant, with the Montney gas-producing region.
Prince Rupert Mayor Lee Brain said in an August interview that other companies are interested in building LNG projects along the British Columbia coast and there’s room for at least one terminal in his town, near Canada’s border with Alaska, as well as in Kitimat.
Potential sites in Prince Rupert would likely include a 2,200-acre property owned by the city that was the proposed location for Exxon Mobil Corp.’s WCC LNG project, or Ridley Island, where AltaGas Ltd. is building a propane-export terminal but has room for more development.
“What we’re doing now is looking at the other players and saying maybe there’s a partnership opportunity for one project in Prince Rupert, one central pipeline,” Brain said.
Chevron Corp. has considered an LNG project in Kitimat, in a joint venture with Australia’s Woodside Petroleum Ltd. In March, Woodside dropped plans for an LNG plant near Prince Rupert to focus on the Kitimat project.
National Bank of Canada analysts led by Greg Colman said in a May report that “the potential for Kitimat LNG to continue to drive forward is very real."
LNG Canada’s initial investment approval is for production of 14 million tons per year. The companies partnering to build the mega project -- Royal Dutch Shell Plc, Petroliam Nasional Bhd, Mitsubishi Corp., PetroChina Co. and Korea Gas Corp. -- propose to eventually export as much as 28 million tons. The chances of that happening are "all but an inevitability" due to the economies of scale, Colman said.
"LNG export facilities tend not to occur in isolation," he said. “When suitable locations are found, they tend to sprout up en masse."
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