LNG project boosts gas industry confidence but not short term gas prices

LNG project boosts gas industry confidence but not short term gas prices

A worker fixes a fence near the proposed LNG site in Kitimat B.C. (CBC)

A worker fixes a fence near the proposed LNG site in Kitimat B.C. (CBC).

The approval of Canada’s first LNG export terminal is expected to boost investor confidence in Western Canada’s natural gas sector.

But the LNG Canada project’s ability to provide a new market for natural gas and thus support depressed prices won’t be seen until the facility is built sometime in the middle of the next decade, observers say.

The announcement on Tuesday, coming on the heels of Canada reaching a trilateral trade deal with Mexico and the United States on the weekend, lifted the mood in the room at an investment bank’s commodity price forecast breakfast in Calgary.

“It’s excellent news that we can get an announcement of a major project in Canada,” said Dale Dusterhoft, CEO of Trican Well Service Ltd., after the event.

“The impact on the immediate market probably isn’t great, in terms of an immediate recovery of pricing, but if we can get this and others built behind it, it’s great for the long-term future of the Canadian business.”

He said he doesn’t expect any increase in demand for his company’s well completion services in the next year or so but said it will start to grow in 2020 as LNG Canada’s completion date nears and producers increase exploration budgets to prove up their resources.

The announcement ensures Canada will be able to export domestic energy products to global markets at a fair price, said Chris Bloomer, CEO of the Canadian Energy Pipeline Association.

“The project … represents a major investment in the Canadian economy, which is critical as our country seeks to attract and retain foreign capital,” he said in a statement.

Global natural gas demand is expected to increase 45 per cent to 199 trillion cubic feet per day by 2040, according to the Canadian Association of Petroleum Producers, which welcomed news that Canada will be able to export to customers other than those in the United States.

The five partners in LNG Canada say they’ve agreed to build the $40-billion project that includes a gas liquefaction plant in Kitimat on B.C.’s coast and a 670-kilometre pipeline delivering gas from the northeast corner of the province.

The partners – Royal Dutch Shell, Mitsubishi Corp., Malaysian-owned Petronas, PetroChina Co. and Korean Gas Corp. – delayed a final investment decision in 2016, citing a drop in global LNG prices.

A continued glut of gas in Western Canada and the march of American shale gas into its traditional markets including Eastern Canada convinced analyst Martin King of GMP FirstEnergy to roll back his forecast for a recovery in benchmark Alberta gas prices next year.

At the event Tuesday, he said natural gas prices will average C$1.57 per thousand cubic feet in 2019, just two cents higher than this year, and marked down from an earlier prediction of C$3 per mcf.

By comparison, New York prices are expected to average US$3.35 for the same amount of gas in 2019, up from US$3 this year.

Gas traditionally sells for more in New York because it’s closer to major population centres but the difference has been widening recently due to pipeline capacity constraints in Alberta and B.C.

“(LNG Canada) is something which is definitely a positive sentiment boost for the industry,” King said. “It certainly gives producers something to hang their hats on.”

The project’s initial phase will require about two billion cubic feet per day of gas to produce about 14 million tonnes per year of supercooled liquefied natural gas, thus increasing the market for Western Canadian gas by about 10 per cent when it comes on stream, he said.

The United States could become the largest LNG exporter in the world by 2025 as nearly a dozen new projects seek regulatory approval, King said, but he added Canada can compete because the Canadian West Coast is much closer to customers in Asia and its gas supply is cheaper.

King said he estimates a total of between 300 million and 600 million cubic feet per day of gas production has been shut down at various times this year in Western Canada because of low gas prices.

The LNG Canada decision is expected to encourage other proposed project proponents to make investment decisions.

“We believe this project has the potential to be the first of many on the West Coast of Canada, if Canadian LNG follows the global standard, being that LNG export areas tend to be ‘hubs’ of terminals, rather than standalone facilities,” National Bank of Canada analysts said Tuesday in a report.

It pointed out the project would be the largest energy project in Canadian history, dwarfing even the largest oilsands projects in both size and scope.

Story by Dan Healing, The Canadian Press

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