At Last - Will Petronas's Stake Finally Make the LNG Canada Export Project a Reality?

Natural gas producers in Western Canada, with their share of U.S. and Eastern Canadian markets threatened by competition from producers in the Marcellus/Utica and other shale plays south of the international border, for years have seen prospective LNG exports to Asian markets as a panacea. But efforts to develop liquefaction “trains” and export terminals in British Columbia failed to advance earlier this decade — for starters, their economics weren’t nearly as favorable as those for U.S. projects like Sabine Pass LNG. Then, by 2016-17, global markets were awash in LNG as new Australian and U.S. liquefaction trains came online, and the BC LNG projects still alive were either delayed further or scrapped. Now, with LNG demand on the upswing and the need for additional LNG capacity in the early-to-mid 2020s apparent, the co-developers of LNG Canada — Shell, PetroChina, Korea Gas and Mitsubishi — have attracted a new and significant investor: Petronas, Malaysia’s state-owned oil and gas company and owner of Progress Energy Canada, which has vast gas reserves in Western Canada. Today, we continue our review of efforts to send natural gas and crude oil to Asian markets with a fresh look at the LNG project and TransCanada’s planned Coastal GasLink pipeline, which will deliver gas to it.

In Part 1, we discussed the fact that while Western Canada is blessed with extraordinary hydrocarbon resources, the U.S. is pretty much Canada’s only crude oil and natural gas customer. That was fine a couple of decades back, when U.S. energy production was falling and U.S. consumers were grateful to have a friendly neighbor offering reliable supplies. In the Shale Era, though, the U.S. is producing more oil and gas than ever and meeting an increasing share of its own needs. So Canadian producers, midstream companies and others have been working to gain access to new, overseas markets, especially the largest energy-consuming giants in Asia: China, India, South Korea and Japan. But pipeline projects to transport oil and gas to the BC coast have been set back time and again, as have plans for crude and LNG export terminals. Last time, we noted that Canada’s crude-export hopes got a boost when the Canadian government agreed to acquire — and promised to finally push through — Kinder Morgan’s long-standing plan to nearly triple the capacity of the Trans Mountain Pipeline (green line in Figure 1) from Edmonton, AB, to Burnaby, BC (near Vancouver) and build three new berths at Burnaby capable of loading Aframax-class crude carriers.

In today’s blog, we turn our sights to Western Canadian gas and what appear to be the recently improved prospects for LNG exports out of BC via the Shell-led LNG Canada project. We’ve visited this topic many times over the past few years, beginning in 2012 with Lonely Gas Supply Seeks Long-term Overseas Relationship, in which we first discussed LNG Canada and several other liquefaction/LNG export projects in early stages of development in Western Canada. [We even wagered that LNG Canada (rendering below) was “the most likely project to make it past the drawing board in BC” because it’s being shepherded by Shell — one of the largest and most experienced players in the global LNG trade — and because its investors include major energy-related companies from target markets China, South Korea and Japan.] Then, in More Than a Feeling, we noted that while the BC port sites being considered for Canadian LNG projects are closer to key Asian markets than their U.S. Gulf Coast competitors and don’t require passage through the Panama Canal, projects like Sabine Pass LNG, Cameron LNG and Freeport LNG held an economic edge because they could make use of existing LNG import facilities and the extensive gas-pipeline networks already in place in coastal Louisiana and Texas. (The BC projects all need big new pipelines from distant production areas — and over difficult, mountainous terrain.) And, in Slip Sliding Away, we posited that while a number of U.S. projects were advancing to construction (those noted above plus Corpus Christi LNG and — in Maryland — Cove Point LNG), their BC competitors didn’t appear to be gaining traction.