Canada’s natural gas sector has officially lost another leg in the intensely competitive race to export LNG to Europe – the world’s largest market for the cleaner energy.

On May 17th, TAP, which stands for Trans-Adriatic Pipeline, broke ground in Thessaloniki, Greece. TAP will connect the Caspian Sea (Azerbaijan nat gas) to Western Europe. This is yet another blow to Canada, among other nat gas producing nations. The $45 billion project is expected to complete in 2020 and will deliver 10 billion cubic meters per annum of natural gas – garnering critical global market share.

While the prime export markets for Canadian LNG are countries which border the Pacific Rim, Canada’s window to execute and secure deals with European nations is becoming smaller by the day…

Canada’s Natural Gas Inudstry losing to U.S.

By relying too heavily on exports to the United States (Canada’s almost exclusive energy buyer), which is rapidly becoming an LNG export powerhouse in its own right, Canada has been left in a very vulnerable position. In fact, the first major shipments of LNG from a U.S. terminal began in February of this year by Cheniere Energy.

Cheniere president of marketing Meg Gentle spoke in Houston, commenting,

“The U.S. will be one of the biggest three suppliers of LNG by 2020.”

Unfortunately, Canada isn’t one of the three – not even close. That is an economic tragedy for the Great White North…

Last September we published Canada Missed the Boat, which highlighted Canada’s mishandling of its LNG opportunity. In it we stated:

“Over the past 24 months, Canada’s LNG export future has fallen from promising to bleak. Environmentalists and large energy companies such as Petronas and Shell have gone back and forth with the British Columbia government and various First Nations groups for years. However, despite Shell receiving conditional environmental approval in June, after all this time, not one of the 19 LNG proposals for the BC coast has committed to begin construction. Meanwhile, other LNG world leaders have pushed full steam ahead, leaving Canada behind…

Canada losing Natural Gas Export Race to U.S. & Australia

The proposed projects in BC, which are in a range from preliminary to advanced stages, are now facing a new set of headwinds: a global supply glut of natural gas, falling prices and fierce competition from rising export nations such as Australia and the United States.”

Click here to read our full report.

Sadly, little has changed since our report last fall…

Canada’s failure to approve a multi-billion dollar LNG plant in Prince Rupert, British Columbia has occurred because of environmental concerns, interprovincial squabbling and a reluctant federal government. With these delays Canada’s opportunity may have come and gone…

The Globe and Mail reported that British Columbia Premier Christy Clark was in Ottawa last week making her province’s case surrounding LNG development. She told The Canadian Press:

“There is something wrong in the system when investors can’t expect to get a yes or a no on environmental certificates and other permitting in something other than 1,100 days…”

Race to Sell Canada’s Natural Gas

New discoveries and a decade-long rise in natural gas and LNG production have overwhelmed global markets. This has led to a supply glut and low prices throughout much of the world. However, despite the poor price environment, companies continue to push product on the market in hopes of garnering long-term distribution contracts.

Chart below: The black line represents projected worldwide LNG demand, while the red bar chart represents global capacity under construction. Once a few more U.S. projects come online, the opportunity will be lost, likely for decades.

 

“The above figure illustrates the competitiveness of the global LNG market. It compares the volume of existing and under-construction global capacity as well as proposed liquefaction capacity in just Canada and the U.S. to the forecasted demand in the global LNG market. BP forecasts that LNG trade will grow at a robust rate of 4.3 per cent, reaching 81 billion cubic feet per day of demand in 2035.”

source: Canadian National Energy Board

U.S. Eating Canada’s ‘Natural Gas’ Lunch

The U.S. is planning on flooding the global LNG market in the coming years. At the CERAWeek energy conference in Houston this February, Cheniere Energy’s Meg Gentle predicted U.S. liquefied natural-gas exports would total about 8 billion cubic feet by 2020. If you doubt America’s fortitude to flood an energy market with product, just look what it did to global oil supply in 2014 thanks to a surge in fracking nationwide.

While the past Conservative and now Liberal Canadian governments have been talking, their neighbors to the south have been acting. Take the company Freeport LNG for example: After a four-year permitting process, Freeport LNG received final approvals for its liquefaction project from the U.S. Federal Energy Regulatory Commission (FERC) and the U.S. Department of Energy (DOE) in 2014.

According to the company’s website, Freeport LNG started construction of the liquefaction project in November 2014 and expects to achieve commercial operation of the first liquefaction train in 2018.

Another project nearing completion is Cheniere Energy’s Corpus Christi, Texas, liquefaction project. The video below sums up the superior infrastructure and branding a company such as Cheniere has achieved.

Cheniere’s liquefaction project is being designed for three trains with expected aggregate nominal production capacity of up to 13.5 million tonnes per annum (mtpa) of LNG. This alone represents more than 17% of Qatar’s 77.4 million tonnes of production in 2014 – the largest exporter of LNG in the world.

What’s more impressive is that, to date, 8.42 million tonnes per annum has been contracted to third party, foundation customers on a long-term FOB basis under sale and purchase agreements (SPAs). LNG sells fast, and it sells in long-term deals; so once a deal is signed, it’s very hard to lose that contract to another producer.

Another company, Williams Partners LP, Tulsa, reported in February that,

“it had executed long-term contracts with two shippers for Gulf Connector, a 475,000-dekatherm/day expansion of the Transco pipeline system to connect US natural gas supplies with global LNG markets.”

The Gulf Connector will deliver gas for Cheniere’s Corpus Christi, Texas, liquefaction project and a shipper in Freeport LNG Development’s liquefaction project near Freeport, Texas. Both facilities are currently under construction.

U.S. races to beat Canada to Asian markets

While the Gulf Coast can hurt Canada’s chances at South America or Europe, it doesn’t really have a chance to compete for the Asian markets. Geographical logistics put Canada’s Pacific Northwest coast in a much more favorable position. However, it appears Canadian bureaucrats have mistakenly thought this gave Canada the luxury of time. The U.S. has never been one to let opportunity, particularly in the resource sector, pass it by…

Calgary-based Veresen, which trades on the TSX, has proposed constructing the Jordan Cove LNG Liquefaction & Terminal facility, which would be built in Coos Bay, Oregon. The company’s goal is to meet the growing global demand for LNG by providing direct access to abundant Canadian and U.S. Rockies natural gas supply sources, primarily through existing pipeline and gas gathering networks.

The Port of Coos Bay, Oregon offers a low-cost shipping benefit for exporting LNG from North America to energy consuming markets throughout Asia Pacific, South America, Hawaii and Alaska, according to Veresen. The company reported:

“Jordan Cove LNG has completed its pre-filing process with FERC and filed a complete FERC application May 2013. In September 2015 the FERC issued a final Environmental Impact Statement for Jordan Cove LNG and Pacific Connector.

Additional permits are required and will be in place prior to FERC authorizing construction to begin.”

Veresen’s NEB permit allows for an export volume of 1.55 billion cubic feet per day (Bcf/d) for 25 years, translating into 9 million tonnes per year (MMt/y) of LNG export capacity from the Jordan Cove terminal.
source: http://www.newswire.ca/news-releases/veresen-applies-for-long-term-expor…

For some context, Prince Rupert LNG is a proposed liquefied natural gas facility that reportedly could have a production capacity of up to 21 million tonnes of LNG per year.
source: http://www.princerupertlng.ca/

Even if Veresen were to begin construction tomorrow, it would take 3-4 years to complete at Coos Bay; however, the States has a history of fast-tracking these types of projects; Canada, on the other hand, doesn’t…

Prior to the new Gulf Coast facilities coming online, the only existing liquefaction terminal in North America exporting LNG was located in Alaska and constructed in 1969. The 2000s should have been spent fast-tracking development of such a facility on Canada’s Pacific coast. Not only has construction failed to commence in Canada, but not even one approval has been secured.

Canada’s advantage is that its western port, if approved and constructed, will be favorably located to Asian markets. Still, much of its competitive bargaining is falling by the wayside as foreign LNG companies lock up multi-year deals.

Europe turns to Azerbaijan Natural Gas

As mentioned above, on May 17th, Europe celebrated the Trans-Adriatic Pipeline breaking ground in Thessaloniki, Greece. We mention this because, aside from the economic benefit, it plays a major geopolitical role.

Zero Hedge reported:

“A single European energy market will allow us to increase our security of supply by allowing energy to flow freely across our borders,” European Commission Vice President for Energy Union Maros Sefovi said at the ceremony. “It will allow us to better negotiate with our external partners, given that the EU is the largest energy importer in the world.”

When Russia cut gas exports to Europe by 60% in January of 2009, the continent fell into an energy crisis. You may remember this was centered around the dispute with Ukraine. Access to cheap, reliable energy is a matter of domestic security and economic survival.

In 2013 we published a Weekly Volume titled The Four Nat Gas Horsemen; and it highlighted the increasing competition between Australia, Canada the U.S. and Russia to get natural gas to the global market. In it we warned only two or three countries would be victorious, not all four…

We chronicled the rise of Russia and its natural gas juggernaut Gazprom which, at the time, had recently signed a memorandum of understanding with China National Petroleum Corp. The agreement stipulated that the two energy powerhouses would send 38 billion cubic meters of natural gas annually through a pipeline into China from 2018 to 2048.

With the U.S. bringing billions of cubic feet online for export in the coming years, Australia securing long-term contracts with key Asian countries and Russia carrying forward with its China dealings, Canada is being left out in the cold. If Oregon gets its West Coast liquefaction facility approved for construction before Prince Rupert, expect Canada to lose more long-term deals; but this time it’ll be key Asian countries, namely China and Japan, at stake.

When the dust settles from all the global LNG deals made in the next two years, it is our belief Canada will be the clear loser – a tragic underachievement for a nation so rich with natural gas. Gloomy report for a long weekend, but this is the state of Canada and its landlocked energy resources…

All the best with your investments,

PINNACLEDIGEST.COM

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