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U.S. LNG plants seen as beneficial to Canadian producers

The liquified natural gas plant on the Chesapeake Bay in Cove Point.

Liquefied natural gas plant approvals are positive for Canadian gas producers regardless of which side of the Canada-U.S. border they could be located, at least from a commodity-price standpoint, a Calgary-based portfolio manager says.

LNG is seen as a potential boon to a gas industry in need of new markets as a way to boost gas prices that have languished with the shale boom and plodding return of industrial demand following the credit crisis.

"I'm hopeful that we have projects either in Canada or the U.S.," Les Stelmach, vice-president and portfolio manager with Bissett Investment Management, said in a recent interview.

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"If projects happen to be built in the U.S., it's an open border for gas. For so long, North America's been an island. It's like an airbag with a one-way valve. You can bring some gas in and you couldn't really get it out."

That has led to the oversupply of gas that caused several years of weak prices, Mr. Stelmach said. The industry has enjoyed respite this winter as frigid weather across the continent prompted a surge in demand for the fuel.

At least 14 proposals for new LNG plants target the B.C. coast, although no developer has made a final investment decision. A U.S. Gulf Coast facility, meanwhile, is under construction.

On Monday, the U.S. Department of Energy approved an application to export LNG from a proposed Oregon terminal that would tap into resources that originate in Canada.

The Jordan Cove LNG project, owned by an arm of Calgary-based Veresen Inc., will rely heavily on gas supplies to be transported through an existing pipeline network from Western Canada.

Although several proponents, including many of the world's largest oil majors and national oil companies, are planning Canadian West Coast projects, uncertainty over rising costs, a limited labour pool and financing constraints, as well as a lack of contracts with Asian LNG buyers, have proved to be big hurdles to investment decisions.

Meanwhile, the British Columbia government has set a target of three operating plants by 2020.

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"As a Canadian, I'd like to see some projects in Canada, but even projects in the U.S. will help balance that supply and demand ratio," Mr. Stelmach said.

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About the Author
Mergers and Acquisitions Reporter

Jeffrey Jones is a veteran journalist specializing in mergers, acquisitions and private equity for The Globe and Mail’s Report on Business. Before joining The Globe and Mail in 2013, he was a senior reporter for Reuters, writing news, features and analysis on energy deals, pipelines, politics and general topics. More

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