Movin’ Out—Exporting U.S. Sourced LNG from the Maritimes (Part 2)

Despite the challenges they would likely face, as many as four companies are exploring the possibility of exporting liquefied natural gas (LNG) from the Canadian Maritimes [1] to Europe, Latin America and Asia. Their thinking is, with Marcellus natural gas production expected to continue increasing, with Sable Island and Deep Panuke gas just offshore, and Europe little more than a week’s boat ride away, LNG exports from Nova Scotia and New Brunswick may well make economic sense. But LNG export terminals are among the most capital-intensive projects; also, piping Marcellus gas through New England—a region with serious wintertime gas-delivery constraints—to the Maritimes would require major pipeline upgrades. Today we look into the LNG project plans and the pipeline expansion needs in more detail.

As we said in Part 1, natural gas markets in the U.S. Northeast and the Canadian Maritimes have been turned on their heads the past few years. Gas from the Sable Offshore Energy Project (SOEP) and Deep Panuke (both located off the coast of Nova Scotia) were once seen as a godsend to increasingly gas-hungry New England, but production from SOEP is down by more than half from its peak to 200 MMcf/d, and by the time Deep Panuke production hit its mark of 300 MMcf/d in December 2013 (three years late), New England, was turning increasingly to gas from the Marcellus.

The Maritimes & Northeast Pipeline (MNP), built 15 years ago to move as much as 833 MMcf/d of Maritimes-sourced gas south to near Boston, has been operating at less than half that capacity for some time, in part because SOEP production has been on the decline. Now there is serious talk of reversing MNP. Spectra Energy, majority owner in MNP, in early February initiated an open season on the proposed Atlantic Bridge project, which would expand Spectra’s Algonquin Gas Transmission and MNP systems, and move Marcellus and other U.S.-sourced gas north on MNP into Maine. Unitil Corp., Maine’s largest gas provider, has agreed to be an anchor tenant on Atlantic Bridge, taking 100 MMcf/d. Depending on market response, Spectra could add 600 MMcf/d or more of northbound capacity, most of it by late 2017 and the rest in 2018. That would be a start in providing the through-New-England pipeline capacity that Maritimes LNG exporters would need, but a lot more pipeline capacity through New England would need to be built for their projects to become a reality.

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Time will tell how many of the four possible LNG export projects are developed. In our first episode, we described the plan by Pieridae Energy (Canada) Ltd. to export up to 10 million metric tons per year (MMtpa)--or 1.5 Bcf/d gas equivalent--of LNG from a proposed terminal in Goldboro, Nova Scotia (see Figure #1) starting as soon as 2019. While Pieridae is getting its ducks in a row, H-Energy, Repsol Energy Canada (REC) and Anadarko Petroleum are considering LNG-related projects of their own in the Maritimes. H-Energy’s project, like Pieridae’s, would be a standard “greenfield” liquefaction-and-export facility project, while REC and Anardarko at least so far have been talking up the idea of using their facilities (REC’s existing Canaport LNG import terminal in St. John, New Brunswick and Anardarko’s partially built LNG import terminal in Melford, NS) as LNG “warehouses” a concept we explain below.

Figure #1

Source: RBN Energy (Click to Enlarge)

The liquefaction and LNG export terminal planned by H-Energy (a subsidiary of Indian conglomerate Hiranandani Group) in Melford (near the Pieridae/Goldboro site) would export 4.5 MMtpa (675 MMcf/d) of LNG starting as soon as 2020, and may be expanded to two or even three times that size later. The 4.5 MMtpa first phase alone would cost US $3 billion, a reminder of how heavy a capital lift these projects are. Like Pieridae, H-Energy is looking at sourcing its gas from the Marcellus and offshore Nova Scotia, and at shipping LNG to buyers in Europe, Latin America and Asia. A feasibility study is now underway. H-Energy said when it unveiled its plan in May 2013 that the Nova Scotia project would provide Indian LNG buyers “an opportunity to have a back-to-back arrangement as H-Energy is in the process of developing two LNG regasification terminals in India.” A key question that Pieridae and H-Energy will need to address is, why does it make more sense to export Marcellus gas as LNG through the Maritimes than through, say, Dominion’s planned LNG export facility in Chesapeake Bay, which is closer to the gas production source and less pipeline-constrained?

Import Export Guys?

Figure #2

Source: Canaport (Click to Enlarge)

REC’s plan is the only one of the four that involves an existing LNG terminal: the five-year-old Canaport facility. A subsidiary of Madrid-based Repsol SA, REC is majority owner and manager of Canaport (see photo in Figure #2), which can receive up to 7.6 MMtpa of LNG and inject up to about 1.2 Bcf/d of natural gas into the Brunswick Pipeline and MNP. In 2013, however, Canaport received LNG shipments (from Qatar and Trinidad & Tobago) totaling less than 10% of its capacity, and Repsol has been looking into a possible shift in its strategy. To that end, Canaport already has in hand approval from New Brunswick’s Department of the Environment to export up to about 7 MMtpa from its LNG storage tanks, and REC has short-term approval from the NEB to re-export LNG from the site. REC’s initial plan is to use Canaport as a sort of LNG warehouse--offloading imported LNG into the terminal’s 10 Bcf onsite LNG tanks, then, when market conditions are favorable, reloading it onto ships for resale (see Figure #3 for Canaport’s graphic explainer; and see here for a detailed description of REC’s plan.). Loading would occur via direct connections between ships and tanks, just as is now done to offload LNG-laden ship arriving at Canaport. LNG would remain in its chilled, liquid form while being warehoused. Exports of U.S. and Maritimes-sourced gas could be a second step, but to do that REC would need to add liquefaction equipment to convert gas into LNG. Canaport is “currently exploring a variety of options to maximize the use” of this terminal.

Figure #3

Source: Canaport (Click to Enlarge)

Still another project on the drawing board comes from Anadarko Petroleum, which is considering reviving a Canaport-size LNG import terminal project at Bear Head, Nova Scotia that it shelved in 2007. In December 2012 Anadarko got the Nova Scotia Utility & Review Board’s (UARB) approval to extend the project’s construction permit through the end of 2015, just in case the company were to decide it now makes sense to proceed. Bear Head’s operation would be similar to the LNG-warehousing approach REC is envisioning for Canaport. Anadarko told the UARB it sees opportunities in rising LNG demand from India and China and the development of an LNG spot market. Its plan—should it ultimately move forward—would allow LNG export companies seeking to divert cargoes periodically during the year to use Bear Head as a sort of way station to help them optimize their receipt and delivery of LNG.  As with Canaport, LNG warehousing itself could be a first step toward onsite liquefaction and export of U.S. and Canada-sourced gas.

Summing Up

The biggest hurdles we see ahead for Pieridae’s and H-Energy’s plans are the multibillion-dollar capital cost of greenfield LNG export terminals, and the need to move large volumes of Marcellus gas all the way up to New Brunswick and Nova Scotia. A LNG export project requires not only long-term commitments from LNG offtakers (Pieradae already has such a deal with E.ON—an impressive start to the Goldboro plan), but the unshakable confidence of investors and lenders. They know the fickleness of the LNG export-import business. And on the gas pipeline front, as we have said, New England has had trouble getting the incremental pipeline capacity it needs to meet even its own, internal needs. Imagine the extra oomph it would take to get enough pipeline capacity built to serve both New England and one or two or more LNG export terminals in the Maritimes.

One last thought on Pieridae and H-Energy: New England’s worst pipeline constraints occur during very cold winter days, when local distribution companies in the region need all the gas they can get to meet space-heating requirements. Could a Maritimes-based LNG export terminal operate flexibly, ramping up its Marcellus gas deliveries, liquefaction and LNG exports when New England pipeline through-put is available, and ramping down all that when the region’s pipelines are full meeting New England’s needs? Perhaps even assisting in the meeting of those needs?  As for the REC/Canaport and Anadarko/Bear Head LNG-warehousing plans, maybe there is a place for them. Canaport has the advantage here, of course, given that it already has the LNG storage and offloading/loading facilities it would need to give the plan a try.

 

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[1] The Canadian Maritimes is a region of Eastern Canada consisting of New Brunswick, Nova Scotia, and Prince Edward Island.

“Movin’ Out” was one of several hit singles from Billy Joel’s 1977 album, The Stranger. It rose to the 17th spot on Billboard’s Hot 100 list. The stage musical “Movin’ Out” based on Billy Joel songs played on Broadway for 3 years from 2002 to 2005.

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Comments

As U.S builds it owns export

As U.S builds it owns export terminals in 5 years, the Eu/Henry Hub differential will go away. Because of congestion AGT basis (boston) was regularly price above UK and Continental Europe this winter so I doubt anybody would have make money exporting U.S gas out of the East Coast. Between Henry and Everett, huge price difference but between Everett and NBP(UK), spread this winter was lower than the freight costs to arb. Pricing congestion+spread is very important.

Currently it costs about 75 cents/MMbtu to ship gas from Canaport to AGT stone point station. Because of congestion, it would cost on some days 20 times more to import it from U.S to Canaport. At IOC they think as a end-user first, LNG feed from Trinidad for the Saint John refinery is a major comparative advantage they have over USEC refineries, they were still profitable while others like P66 were struggling during last winter peak days. 

Simon