Canada must speed development of liquefied natural gas export projects to compete with emerging international players also vying to supply growing Asian economies, Ernst & Young argues in a new report that puts the tab for infrastructure needed over the next decade at $50 billion.
Low natural gas prices across North America are forecast for years to come, amounting to an erosion of Canada’s primary market south of the border, which means moving quickly on gas exports across the Pacific is critical, said Lance Mortlock, senior manager in the consultancy’s oil and gas advisory practice.
“We really don’t think that Canada has a choice here,” Mortlock said ahead of Thursday’s release of the report on Canada’s place in the global LNG industry.
“The opportunity window will be open for a finite period of time,” he said. “Certain companies are asking the question, ‘Canada has these resources, can they get those resources to the Asian market and can they do it quickly?”
Ernst & Young predicts Canada could have about 12 million metric tonnes per annum (mmtpa) of LNG export capacity in place by 2015, but Mortlock cautioned the figure depends on whether U.S. Gulf Coast LNG proponents and other competitors worldwide move in.
The capacity outlook for Canada is just over twice the initial size of the most advanced B.C. proposal, Kitimat LNG, but a small fraction of anticipated future global supply. Qatar, the most ambitious LNG player, has more than six times Canada’s capacity planned by 2015 — at 77 mmtpa — Ernst & Young says, naming Australia, Iran, Russia and Malaysia as other competitors to watch.
The consultancy paints a strong business case for building LNG supply for Asia, as Pacific basin gas demand is forecast to double to 241 mmtpa by 2020, outstripping regional projected supply by at least 11 mmtpa — five per cent of total demand.
LNG proponents in Canada, though, have yet to lay the hundreds of kilometres of pipe required to connect trillions of cubic feet of recoverable shale gas in northeastern B.C. that underpin projects to the coast, and construction has not started on any export terminals.
“Those pipelines need to go across pretty sensitive environmental lands so overcoming those challenges from an environmental perspective and First Nations perspective will be very important,” Mortlock noted.
While gas gathering systems exist and are being built to bring on volumes from B.C. shale plays in formations including the Horn River and Montney, TransCanada Corp. chief executive Russ Girling said recently that a “significant” amount of new pipe would have to be put down to the West Coast.
“There isn’t any pipe that exists today to move that gas in any material amounts to the West Coast, so we’d have to build that infrastructure,” Girling told reporters late last month following the annual general meeting of TransCanada, Canada’s largest pipeline company.
At least four LNG partnerships, which include energy producers, have announced proposals to build projects in coastal Kitimat, B.C., and a host of others are examining the idea. Asian firms with experience developing upstream, midstream and downstream aspects of LNG — including Mitsubishi Corp., PetroChina Co. Ltd. and Korea Gas Corp., among others — have seized the opportunity, pledging billions of dollars in investments towards projects and development of northeast B.C.’s vast shale deposits.
Early entrants Apache Corp., Encana Corp. and EOG Resources Inc., forming one of two partnerships with an LNG export licence in B.C., have yet to make a final investment decision on the $4.7-billion facility and pipeline project, which would initially export five mmtpa, the equivalent of nearly 700 million cubic feet of gas per day.
Meanwhile Australia, Qatar, Malaysia and Russia are rapidly advancing their projects and inking long-term supply deals, quickly becoming “powerful threats” to Canada, Ernst & Young notes.
Source: The Calgary Herald