Energy Ink

Another B.C. LNG export scheme wins approval

February 03, 2012

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Canada’s National Energy Board (NEB) has approved an export license for B.C. LNG Export Co-operative LLC to ship up to 1.8 million tonnes of the super-cooled gas per year for 20 years from British Columbia’s West Coast at Kitimat. The project, a 50 per cent partnership between Houston-based LNG Partners and the Haisla, joins the Kitimat LNG venture sponsored by Apache Canada Ltd. as the second export scheme to win approval from the federal regulator in the last six months.

At least 13 parties have signed on to become members of the shipping collective, which plans to move its first tanker of LNG by 2014. No sales and purchase agreements have been signed with potential customers, although the co-op counts prospective buyers among its members. A final investment decision is expected on the first barge-based liquefaction train, estimated to cost $400 million, by April 15, Nathan VanderKlippe and Carrie Tait report at the Globe.

Market watchers are also expecting a decision on the much larger Kitimat LNG venture this quarter. That project would ship five million tonnes of LNG annually, or 700 million cubic feet per day, in its first phase to overseas markets. By 2018, plans call for construction of a facility big enough to pump out 10 million tonnes of the stuff each year, or a whopping 1.4 billion cubic feet per day.

Both projects are supported by growing supply projections from B.C.’s Montney and Horn River gas plays, as well as the promise of diversified markets at a time when North American natural gas, beset by surging supplies and mild weather, is trading at bargain basement discounts. In approving the export co-op, the NEB “recognizes that the forecast annual LNG demand growth in Asia provides a new opportunity for Canadian producers to diversify their natural gas export markets.”

In addition, the board said the co-op would “allow smaller natural gas producers and marketers to participate in a market that otherwise would have been cost prohibitive due to the high, front-loaded costs associated with developing a liquefaction project.”

Those costs could escalate quickly. The export co-op is smaller than its Apache-sponsored rival, and proponents believe they can keep a lid on inflation by building the initial train remotely on barges. Both projects will require specialized steel and engineering, however, which could lead to higher costs, according to FirstEnergy Capital analyst Martin King.

More than the co-op, the $5-billion Kitimat LNG venture must also compete for labor with the oil sands and federal shipbuilding contracts. Proposals in the works by Shell Canada and Progress Energy, plus those planned for the Gulf of Mexico and U.S. West Coast, will surely add to the strain. “People have to watch the cost side of the equation and factor that in to what they think prices are going to be, because you’re looking at three or four years down the road before you can start to monetize the assets,” King said in a recent interview.

Australia provides a case study in cost blowouts, with some LNG projects there as much as 50- to 70-per cent over budget. “Some of these are into the $20- or $30-billion range,” King said. “That’s a lot of money.”

You can link to the NEB decision on the co-op here.

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