Yedlin: East Coast LNG Moving Faster Than West Coast
DEBORAH YEDLIN, CALGARY HERALD
More from Deborah Yedlin, Calgary Herald
Published on: May 23, 2017 | Last Updated: May 23, 2017 8:08 PM MDT
For a ray of hope on the liquified natural gas file, it might be best to look east rather than west.
Last week, privately held Pieridae Energy Ltd. announced a reverse takeover of Quebec-based energy company Pétrolia Inc., becoming the first publicly traded LNG company in Canada.
It’s a move intended to do two things: facilitate access to capital for Pieridae, while also giving it a natural gas producing asset base.
Pieridae is an LNG player with all the requisite approvals from all regulatory bodies to go ahead with its Goldboro LNG project in Nova Scotia. The plan all along has been to become a fully integrated LNG project, with natural gas producing assets and an LNG export terminal.
What sets Pieridae apart from other LNG projects is that it has a 20-year off take agreement with Germany’s largest utility Uniper SE, as well as a US$3.5-billion loan guarantee from the German government; if anyone doubts there is interest on the part of European countries to decrease their dependence on Russian natural gas, this is a very good example.
Also in Pieridae’s favour is the transit time to Europe is six days shorter than from the Gulf Coast and that the Goldboro facility is located in a deep-water port and very close proximity to pipe, unlike the situation in B.C.
The fact there has been a re-gas terminal operating in New Brunswick since 2005 as a joint venture between Repsol and Irving Oil is also helpful, if not downright refreshing. Pieridae has not encountered the same opposition that has been a common theme facing projects in the West.
What has been missing in Pieridae’s equation is money. Rather than try to raise funds as a private company and move the project to the final investment decision, Pieridae chief executive and founder Alfred Sorenson looked south of the border at the healthy valuations of fledgling companies that aren’t as far along as his company and decided a better route was to find a public vehicle.
In the best of all possible worlds, it would have natural gas assets too. Enter Petrolia, with natural gas molecules and publicly traded.
The plan is to raise $50 million, with the timing on a final decision expected to happen in first quarter of 2018. Sorenson says construction would start by the end of that year and the goal is to be shipping by 2021.
The collective wisdom on LNG demand is that the current surplus will be worked through by 2020, which means companies that want to catch the next wave need to proceed next year.
Sorenson was far more upbeat and optimistic on Friday, than he was over a lunch back in December, when he had just learned that a deal which would have pushed the project along with another company, had cratered.
The challenge had been securing the natural gas contracts — or assets — to support the project.
But no one was willing to bite on any sort of long-term production contract, hence the interest in owning the molecules and the facility.
“There was no interest in anything long dated,” said Sorenson in December.
But this is a guy who doesn’t give up easily.
He’s been at this for the last four and a half years — and before that, it was Kitimat LNG for six years. The Kitimat project started life as an LNG import and re-gas terminal, but when the shale gas revolution took hold, Sorenson saw the writing on the wall and the project became one that would export LNG.
One could argue Sorenson was the catalyst to the idea of LNG being viable in Canada.
Sorenson says the market is too focused on short-term projects.
If one looks at the dearth of major investment commitments in the oilpatch around the globe since oil prices collapsed in 2014, the lack of big ticket investment decisions has been a common theme in recent months.
This was highlighted back in March by the Saudi energy minister, Khalid Al-Falih.
“I am concerned misguided projections of peak demand and stranded petroleum resources may discourage the trillions of dollars of investment needed to underpin essential oil and gas supplies during the long transformation of our global energy system,” said Al-Falih.
This lack of investment was brought up again last week by the Eurasia Group’s chief executive, Robert Johnston, who pointed out that even the most optimistic projections for an increase in U.S. shale production won’t be enough to compensate for the increase in global demand along with the decline rates in existing oil fields.
And last month, the head of Total SA, Patrick Pouyanne, said at an LNG conference in China that the lack of investment driven by the current surplus will lead to supply challenges by 2021.
The West Coast, with the 19 LNG projects that have been proposed, has been sucking up the oxygen on this file — probably ever since Kitimat was sold to Apache in 2010 and sold again in 2015. But given progress being made on the East Coast, the bi-coastal LNG game is looking more and more like a version of one of Aesop’s Fables, The Tortoise and the Hare, with the East Coast in the role of the tortoise.
And because of that, it’s imperative that Canadian producers look for ways to be part of that initiative. There’s no point in reiterating the frustration around inadequate market access, for both oil and natural gas. It’s been going on too long. Pieridae presents a good opportunity for natural gas producers — there’s plenty of natural gas to support more than one project. It’s simply time to look out on the horizon, stop being stuck in today and figure out how to make this happen for the long haul.