Canadian LNG projects face pricing pressure in Pacific
Long-term contracts elusive amid demands for cheaper LNG
The rush to deliver Canadian liquefied natural gas (LNG) to Pacific markets has hit a potentially major snag.
Asian gas buyers in key markets like Japan, the world’s No. 1 importer of the super-cooled fuel, are demanding cheaper LNG prices just as Canadian export projects are looking to secure long-term sales deals based off the more expensive custom of linking the commodity to oil prices.
The hard bargaining follows a recent agreement signed by Cheniere Energy to export gas from the Louisiana Gulf Coast based on the North American Henry Hub, which has plunged amid a glut.
The Cheniere deal “created quite a ripple through the marketplace,” David Calvert, vice-president of the Apache Canada-led Kitimat LNG project, told a business forum at Calgary’s Petroleum Club.
Apache has partnered with Encana Corp. and the Canadian unit of EOG Resources on the multibillion-dollar Kitimat LNG export terminal proposed for British Columbia’s West Coast.
The group received an export license from Canada’s National Energy Board to ship up to 10 million tonnes of gas annually to overseas markets last Fall, but has struggled to ink sales deals with buyers.
Japan’s trade minister, Yukio Edano, has recently called for a “paradigm shift” in the way LNG is priced, raising questions about the viability of long-term contracts linked to oil prices.
Calvert said higher prices are needed to support the Apache-led venture because it is a new, greenfield development. He said the Cheniere deal had created “unrealistic expectations” among Asian gas buyers.
“We could have sold this thing out a year ago,” he said of the Kitimat scheme, “but we’re not prepared to sell it at dollars that don’t make sense.”