LNG/Natural Gas Proponents Optimistic About Outlook

Daily Oil Bulletin Jim Bentein – June 12, 2019

Developers of LNG projects in Canada, and the head of an LNG industry group, spoke optimistically on Tuesday about future LNG development, given the demand outlook.

Meanwhile, the head of Peyto Exploration & Development Corp. noted that producers would need to up their game.

“We better get busy then if we are going to supply five bcf/d of gas in the next five years,” said Darren Gee, Peyto’s CEO and president.

Gee’s comment came during a panel discussion at the Global Petroleum Show revolving around the theme “Global Gas and LNG - A Changing Energy Future.”

He was reacting to comments made by Stefan Vos De Wael, general manager, commercial with Royal Dutch Shell plc, lead developer of LNG Canada, and Alfred Sorensen, CEO and president of Pieridae Energy Limited, which is planning to develop a $10 billion LNG project near Goldboro in Nova Scotia.

“We’ll be celebrating the success of LNG Canada,” said Vos De Wael, replying to a question about where the sector would be in five years.

“We’ll see LNG projects on the west and east [of Canada] and [we’ll be] serving the shipping and trucking markets,” added Sorensen.

Shrinking market

Gee had earlier talked about the way the market for Canadian natural gas had shrunk in the last decade or so, as the U.S. moved from needing to import gas to exporting it, via a handful of LNG export projects.

He pointed out that production in Western Canada had declined from about 18 bcf/d in that time to about 16 bcf/d, with prices collapsing.

“The price doesn’t need to be $10 … but now it’s selling for 65 cents,” he said, adding that it’s virtually impossible for gas production to be profitable at those prices.

The panel members agreed that it’s crucial for producers to have access to export markets outside of Canada and the U.S.

“The price [of gas] has to go up,” said Sorensen. “The commodity is being produced at a loss.”

He said capital won’t flow into the Canadian gas sector until producers can access export markets. That will happen, the panelists agreed, because of world population growth, up from about six about billion people now to 10 billion by the 2050s, the growth of the middle class globally and resultant energy demand growth.

In addition, because natural gas produces about half of the greenhouse gases (GHG) of other fossil fuels, use of the commodity is expected to grow far more than coal or oil over the next several decades.

Bryan Cox, president and CEO of the BC LNG Alliance, said Canadians need to appreciate the scale of the world’s LNG market, as well as the opportunities the sector has to grow in Canada.

“LNG is amazing,” he said. “It represents an opportunity to build a brand new industry… Our role is to talk to British Columbians and Canadians about that opportunity.”

Slow growth in Canada

However, it is a sector that has seen painfully slow growth, said Sorensen.

A decade ago there were more than 20 LNG export projects proposed for Canada’s West Coast, but developers have dropped plans for most of those, with the exception of Shell’s project and the smaller Woodfibre LNG project, planned for the Squamish, B.C. area. It would be about one-quarter of the size of LNG Canada. Chevron Canada Limited earlier this year applied to the National Energy Board (NEB) for a licence to export LNG from Canada for a term of 40 years.

However, LNG veteran Sorenson pointed out that Cheniere Energy Inc., a first-mover in LNG development on the U.S. Gulf Coast, is about to develop its sixth train of LNG exports, which will lead to exports of about six bcf/d overall.

“Canadians are lucky and lazy,” he said, saying they too often take their energy bounty for granted.

Vos De Wael and Sorensen said the market for LNG is growing, beyond the traditional markets in Asia. “We see new markets in Southeast Asia, including India, Pakistan and Thailand,” he noted.

In addition, he and Sorensen said the European market is growing, because countries like Germany don’t want to be over-reliant on Russia for their gas supplies. They said demand for gas will also grow in the marine fuel market because stiff new standards for marine fuel use will force shipping firms to switch from diesel and other fuels to greener options.

Finally, they said there is also a potential for growing demand in the trucking market, as the demand for cleaner fuels grows.

Sorensen added that technological improvement are helping to grow the market, particularly in countries like Pakistan. He said the cost of building regasification facilities has declined significantly because of the emergence of floating facilities that can be built for $250 million, down from $1 billion or more for a land-based plant.

Vos De Wael described LNG as “transformative” with the ability to “change the lives” of hundreds of millions of people worldwide without access to sufficient energy sources. 

For gas producers, it means having access to a market of “five billion people” instead of a few million in North America, he said. However, Cox pointed out that there are still more domestic markets that gas producers can access, such as the marine market in B.C.

Funding projects, pipelines needed

But Sorensen said governments and Canadians need to support LNG development, since companies like his need to attract outside capital.

He said the departure of U.S.-based majors and international companies like Shell from being heavily invested in the oilsands sector should be a lesson for Canada as the LNG sector needs to attract domestic and foreign investment.

The panel members agreed that Canadian LNG developers have many advantages, including access to large and low cost gas supplies, faster access to Asian and other markets than U.S. Gulf Coast LNG plants and the lowest-emission LNG in the world, especially in B.C., where most of the province’s power is generated by hydro.

Gee said he agrees with all of those points “but we need to build pipelines,” he said, referring to the lack of egress from the Montney to the coast.