Daily Oil Bulletin Friday, December 6, 2019, 6 AM MST
This article is part of an editorial series “Canada, LNG and the natural gas economy.” This initiative is supported by the Canadian Society for Unconventional Resources (CSUR), which is a leading Canadian source of factual, unbiased technical information on the development of unconventional oil and gas resources.
Liquefied natural gas projects planned for eastern Canada represent a significant opportunity for Alberta’s gas producers to reach tidewater and access markets in western Europe.
Three key LNG project located in Eastern Canada — Pieridae Energy Ltd.’s Goldboro project in Nova Scotia; LNG Limited’s Bear Head project, also in N.S.; along with GNL Quebec’s Énergie Saguenay project — all plan to access gas from Western Canada.
That’s good news for struggling producers in Alberta and British Columbia, as increased demand for gas from Western Canada would lead to improved pricing.
In addition, these projects — especially the two in N.S. — are about half the shipping distance to major European markets compared to U.S. Gulf ports, a major advantage for the Canadian proposals.
Several steps taken by Pieridae
Pieridae has taken several recent steps to move its Goldboro LNG project forward. In late June it announced it would spend C$190 million to buy Shell Canada Energy’s midstream and upstream assets in the southern Alberta Foothills, which recently closed.
That followed the announcement in August 2018 that it would acquire Ikkuma Resources Corp. in an all-stock deal (no dollar amount was revealed). That Alberta Foothills-focused junior produced about 101 mmcf/d.
“Closing the Shell asset acquisition means we have secured the majority of the gas needed to supply the first train at our Goldboro LNG facility for at least 20 years,” said Alfred Sorensen, Pieridae’s chief executive officer. “Now, we can focus on completing negotiations with Kellogg Brown & Root Limited for a fixed price contract to build the Goldboro LNG facility in order to complete the project financing and make the final investment decision in 2020.”
Sorensen doesn’t see the access to western Canadian gas as a huge barrier to the development of his Goldboro LNG project, which would have a capacity of 10 million tonnes per annum (mtpa) and cost up to US$10 billion to develop.
“We have spoken to TC [Energy Corporation] and Enbridge [Inc.] and we think, given the volumes we would need, it’s possible with the existing infrastructure,” he said.
It would involve “some looping,” but the gas could move from the TC Mainline to the Maritimes & Northeast Pipeline, with it traveling to Nova Scotia. M&NP was originally built to transport gas from developments offshore N.S. to markets in Atlantic Canada and the Northeast U.S.
Goldboro LNG is located adjacent to the Maritimes & Northeast Pipeline, and is why the site was chosen, said Sorensen.
Diversifying supply for Europe
In July 2019, Pieridae negotiated extensions of the key deadlines under its 20-year agreement with Germany’s largest utility Uniper.
These included expected commercial deliveries of gas to Uniper to start between Nov. 30, 2024, and May 31, 2025, and the extension to Sept. 30, 2020, of the deadline to make a positive financial investment decision for moving ahead with the Goldboro LNG project.
The 20-year agreement with Uniper is for all of Train 1 at Goldboro or five mtpa.
Uniper is the largest distributor of natural gas in Germany, and one of the largest distributors of natural gas in all of Europe.
At the Canadian LNG Conference held in London, U.K., at the end of November, Sorensen said: “Uniper, for us, ended up being a one-stop shop. Not only can we sell gas to the Germans … they [also] deliver into the United Kingdom, into Spain, into Italy, and in the summer we could even sell into Brazil.”
The deal with a German utility unfolded “because they don’t want to be reliant on Russian gas,” Sorensen said. And shipping time from Nova Scotia to Germany and other parts of Europe is six days, far less than the 10 or more days from the U.S. Gulf Coast, a competitive advantage for projects on Canada’s East Coast.
“Our entire project is about geopolitical issues,” Sorensen said at the London event. “It’s about diversifying western European gas away from Russia. And it’s why the German government is as supportive as they are.” (The German government has confirmed support of the project, declaring it eligible in principle for up to US$4.5 billion in loan guarantees, including US$1.5 billion for upstream development.)
Demand for natural gas and LNG will increase in Europe as France, Italy, Spain, the Netherlands and — most likely — Germany phase out coal, as Germany moves away from nuclear energy, and as the Netherlands gradually phases out of production from its oil and gas fields, according to the former executive director of the International Energy Agency.
“All this will increase the need for gas imports in Europe, and I highly expect Europe’s import needs will increase by 50 bcm in the next five years,” Marie van der Hoeven said at a recent PETRONAS Speaker Series event. “While Russian gas might satisfy quite a lot of these additional import needs, there are limiting factors.”
For example, noted van der Hoeven, pipeline transportation bottlenecks to western Europe from Russia persist. There is also much political resistance in Europe to importing Russian gas, she said.
These two issues coalesce with concerns regarding the Russian-led Nord Stream 2 and TurkStream pipeline projects.
“The pipelines are almost operational despite strong opposition by the European commission and some eastern European countries,” she said, adding these pipelines enable Russia to minimize use of Ukraine’s transit complex — the object of “very difficult negotiations” between the EU, Russia and Ukraine as current contracts expire.
“And so, given the political reluctance to significantly increase gas imports [from Russia], LNG will need to fill the European supply-demand gap. At the same time, European consumers will have to compete with Asian buyers who’ve traditionally been more ready to pay premium prices.”
Bear Head project
Another N.S. project — the Bear Head LNG export plant at Point Tupper — also touts its closeness to the European market, being about half the distance to Europe compared to U.S. export facilities in the Gulf of Mexico. In addition, the site is closer than its North American competitors, including those in B.C., to other major LNG markets including burgeoning natural gas markets in India and Argentina.
Bear Head initially was designed around accessing gas from offshore N.S., but that source no longer exists. It then looked at accessing U.S. gas and had approvals in place to import it, but the current Trump administration wants U.S. gas to be exported from U.S. LNG export plants.
Originally designed as an LNG import facility by then-owner Anadarko Petroleum Corporation, the 200-acre-plus site had roads and other infrastructure already in place when Australian-based LNG Limited (LNGL) bought it in 2014 for US$11 million. Anadarko had spent US$100 million on the site. LNGL has added about 100 acres of land to the site since then.
The company is also proposing to build its Magnolia export project in Louisiana, for about US$4.62 billion, with Bear Head costing about the same, said John Baguley, chief operating officer of LNGL.
The Bear Head LNG export terminal also plans to use gas from Western Canada.
The project, which would ultimately export about eight mtpa, would need to access 1.75 bcf/d from TC Energy’s Mainline, which moves gas from Western Canada to North Bay, Ont.
That would require the development of a 1,600-1,700-kilometre pipeline from North Bay to Nova Scotia, which Baguley said would cost “billions” of dollars.
“We’re too small to do it,” he said.
Baguely suggested it might be a good idea to partner with competitor Pieridae on a pipeline to move gas to N.S., noting there are potential synergies between the two projects, but he “has never really talked to Pieridae about that.”
Meanwhile, Sorensen said a new pipeline would likely be needed from North Bay to access enough gas for both Bear Head and Goldboro. And he agrees that “between the two of us [LNGL and Pieridae] we could likely finance a [new] pipeline.”
Sorenson estimates it would cost LNGL about $100 million to build the 60 kilometres of pipeline from Goldboro to Bear Head.
Recently, TC Energy’s newly appointed executive vice-president and president of Canadian Natural Gas Pipelines, Tracy Robinson, said she sees growing interest among its customers in the prospect of access to global LNG markets off the East Coast.
There’s “lots of interest” among producers of piecing together transportation to reach any number of markets — Eastern Canada, northeast United States and across TransCanada’s U.S. system, she said.
Robinson said eastern LNG projects continue to make progress and that TransCanada is in discussions with all of them.
“They are all, I would say, at various stages of development, supply, getting pipe capacity, positioning an LNG facility and finding markets,” she said. “We are watching that carefully. We have not yet signed any agreements with any of them but we are in dialogue with all of them.”
GNL Quebec’s Énergie Saguenay project, which involves the construction of a natural gas liquefaction complex at Port Saguenay, Que., plans to export 11 million tonnes of LNG per year, with gas sourced from Western Canada.
The project includes liquefaction equipment, storage facilities, and marine shipping infrastructure. The project is worth an estimated US$7.2 billion and is slated to start operations in 2025.
Gazoduq Inc. is proposing the construction and operation of a natural gas pipeline approximately 780 kilometres long between northeastern Ontario and Saguenay. This proposed project would connect TC Energy’s existing main natural gas transmission system in northeastern Ontario to the Énergie Saguenay project.
In a pre-application project description filed earlier this year with the Canada Energy Regulator, Gazoduq said the 1.8 bcf/d pipeline will provide the necessary link between surplus natural gas supplies in Western Canada and the LNG facility’s international markets such as Asia and Europe, as well as potentially providing transportation services to local distribution companies in northern Ontario and Quebec.
The 42-inch pipeline is scheduled to be in service by the fourth quarter of 2024 with the LNG facility expected to launch operations in 2025. “Project success rests on the natural gas transmission line being in-service by the fourth quarter of 2024,” said Gazoduq. “This will require tightly controlled, but achievable project execution and approval timing.”