Canada's national energy regulator has granted its second liquefied natural gas export licence in less than four months – further opening the door to a future where Asia-bound tankers deliver new profits to struggling gas producers.
The National Energy Board approved an application by BC LNG Export Co-operative LLC, to ship LNG out of Kitimat, B.C., the regulator said in a statement Thursday.
"We're very pleased to get the licence," said Tom Tatham, the driving force behind BC LNG. "It's one key thing that we need to do that's now out of the way. We're very happy, as are the Haisla."
B.C.'s Haisla Nation is a 50-per-cent partner with BC LNG, which has the support of some important corporate players, including Talisman Energy Inc. and Tenaska Marketing Canada, one of the largest exporters of natural gas from B.C. and Alberta.
The export approval gives Encana Corp. and its partners – who have also proposed an LNG export facility near Kitimat – a dose of competition and makes the Haisla an important player in the natural gas shipping business.
Energy companies want to build export facilities on the west coast because natural gas is worth far more in countries like China and South Korea. North America is swimming in natural gas, thanks to prolific shale plays, which has pushed prices to 10-year lows in 2012. Moving natural gas off the continent would also help boost domestic prices.
A Wood Mackenzie study done for BC LNG suggested Asian gas prices would range from $11 to $18 per million British thermal units over the next decade. In North America, gas is currently selling for $2.50. BC LNG plans to charge $3 to liquefy a million BTUs of gas; transportation through pipelines and tankers is expected to cost an additional $2.25 to $2.75 (for a total of $5.25 to $5.75) to get the gas to Asia. That leaves a potentially hefty profit margin.
"It does make sense right now with these numbers that we're seeing in the market," said Kristen Gould, a vice-president with Tenaska. "We're hoping that it does add value to the producers' netbacks."
The National Energy Board, in giving its reasons for the decision, also noted "the benefits for the Haisla Nation, including an interest in BC LNG, and employment opportunities resulting from the development and operation of the liquefaction facility."
While international energy companies have flooded into western Canada's unconventional natural gas plays – China National Petroleum Corp., for example, purchased a 20-per-cent stake in one of Royal Dutch Shell PLC's properties in B.C. Thursday – BC LNG makes room for outfits lacking the same clout.
"BC LNG's export model permits smaller natural gas market participants in Canada to play a part in exporting LNG," the NEB said. "Members of the co-operative will submit bids to provide natural gas to be liquefied or purchase LNG. A committee will review the bids and choose those that will yield the greatest margin to the co-operative."
Net revenue from selling the gas in other markets would be split among co-op members. In addition to Talisman and Tenaska, five gas-producing companies have signed up: Enerplus Corp., Birchcliff Energy Ltd., Painted Pony Petroleum Ltd., Northpoint Energy Ltd. and UGR Blair Creek Ltd.
In total, 16 parties have signed up to be part of the BC LNG co-operative. Among them are companies representing "a broad cross-section of Asian countries," Mr. Tatham said. Additional members may be added upon request.
BC LNG plans call for construction of liquefaction facilities, which use deep cold to convert natural gas into a liquid, aboard barges that can be built elsewhere and shipped to Kitimat for shore-side installation. Each barge could liquefy up to 125-million cubic feet a day; the NEB licence allows BC LNG to liquefy, in total 230-million cubic feet a day. It will be allowed to ship 26-million tonnes of LNG, 47.9-billion cubic metres of natural gas, over a 20-year period. At most, it is allowed to move 1.8-million tonnes of LNG annually, which translates to about 2.4-billion cubic metres of natural gas.
BC LNG expects to make a final investment decision by April 15 – at that point it would decide whether to build the first barge at an estimated cost of $400-million. An investment decision is also expected in the coming months from the companies backing Kitimat LNG, a much larger project that could move up to 1.4-billion cubic feet a day of LNG off the coast and cost about $5-billion.
The BC LNG plan is much more modest – but its backers say that by building its terminal far from Kitimat on barges, it has much greater control of cost since it can take advantage of lump-sum contracts and doesn't have to fight weather. That should allow it to ship gas for a reasonable price, Mr. Tatham said.
The BC LNG terminal would be located along the same arm of land, just southwest of Kitimat, that could one day host both the Kitimat LNG facilities, and the oil ship-loading terminal proposed for Enbridge Inc.'s Northern Gateway oil sands pipeline project.
Kitimat LNG, owned by Apache Corp., EOG Resources Inc. and Encana, received a similar export licence in October. It was the first export licence the NEB approved since Canadian gas markets were deregulated in 1985.
A series of other companies have also proposed terminals. The most prominent is a Royal Dutch Shell plc proposal in partnership with Mitsubishi Corp., Korea Gas Corp. and China National Petroleum Corp. Malaysian LNG importer Petronas has also discussed plans to build an LNG terminal after buying a stake in B.C. gas reserves from Progress Energy Resources Corp. last June.
Those plans come amidst a broad push in recent months by the federal government to send Canadian energy products to Asia. In its reasons for its decision on the BC LNG project, the NEB said such exports make sense, when it comes to natural gas.
"The board recognizes that the forecast annual LNG demand growth in Asia provides a new opportunity for Canadian producers to diversify their natural gas export markets," it wrote, pointing to the possibility of "attractive netbacks," or profits, from shipping gas to Asia.
"Due to the size of Canada's natural gas resource, proximity to Asian markets and stable political and regulatory environment, the board accepts BC LNG's submission that Canada is viewed as a desirable source of supply for Asian LNG purchasers."