The Long Run - The LNG Canada Project Will Impact Gas Markets, But Not Soon Enough

LNG Canada, the newly sanctioned liquefaction/LNG export project in British Columbia, is an entirely different animal than its operational and under-construction counterparts in the U.S. The Shell-led LNG Canada project is being developed without any of the long-term offtake contracts that financed Sabine Pass, Cove Point and the projects now being built along the Louisiana and Texas coasts, and it requires the construction of a new, long-haul pipeline — Coastal GasLink. What’s also different is that the BC project’s co-owners have been developing their own gas reserves to supply the project, though they may also turn to the broader Montney and Duvernay markets for the gas they will need. Today, we conclude a two-part series with a look at how the project expects to undercut its U.S. competitors.

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.

It will still be a few years until Canada joins the ranks of nations exporting natural gas in the form of LNG. Until then, a great deal of work has to be completed on both the LNG Canada liquefaction and export facility in Kitimat, BC, and the primary gas pipeline linked to it: the Coastal GasLink. Unlike most LNG export sites in the U.S., which can receive feedgas from multiple production basins via an array of major trunklines, the LNG Canada plant will be relying on gas supplies from primarily one basin: the Montney in Western Canada. And all that feedgas will be transported across British Columbia through one mammoth pipeline. In today’s blog, we take a closer look at the small number of pipelines that will supply gas from the Montney to Coastal GasLink for eventual delivery to LNG Canada.