Canada’s first LNG export terminal delayed a year
Canada’s first liquefied natural gas export terminal will come on stream at least a year later than expected and will cost millions more than its $400-million initial capital budget, Calgary Herald reports.
Furthermore, the Alberta and B.C. producers who supply it will be receiving less than expected for their product, said Tom Tatham, managing director of proponent BC LNG Export Co-Operative, LLC.
The Douglas Channel LNG Project will still be the first Canadian LNG exporter, he said, but it is now scheduled to open in the second quarter of 2015, not in early 2014 as originally planned.
“We’ve had probably, from when we commenced the project, a good year’s delay for various reasons,” he said Monday, adding he hopes to have final sanctioning of the project within weeks so that long lead items can be ordered and construction started in the spring.
The project price is going up because it now must include a 45-megawatt gas-powered electrical generation plant, Tatham said.
Previously, BC LNG had planned on tapping into the provincial grid for the power needed to chill the gas to -160 C for ocean transportation but new provincial rules mean the project must be self-sufficient.
Tatham, reached in Japan where he’s talking to potential customers, said it has also taken longer than expected to sign up producers as co-op members.
He said the premiums they will be receiving for committing their gas are lower than anticipated because Asian buyers are increasingly favouring a North American market index as a basis for pricing, instead of the much higher Japanese benchmark they previously insisted upon.
“The bidding procedures didn’t provide a huge uplift to the producers but it will be overall beneficial to those who participated,” he said.
“Our initial hope was we could do something significantly in excess of index (but) there’s been a fundamental shift in the marketplace.”
Japanese gas prices have been above $15 per gigajoule recently while Alberta prices at the AECO hub hover around $3, too low to pay the cost of replacing the gas in many cases.
BC LNG, co-owned by Houston-based LNG Partners and the Haisla First Nation, is proposing a barge-based liquefaction plant near Kitimat. It was the second project to win a Canadian LNG export licence.
It said purchase and offtake of the plant’s product will be handled jointly by LNG Partners and Bermuda-based LNG shipping company Golar LNG Ltd., which is also being asked to provide financing for the facility.
Tatham said Golar has agreed to provide two of its tankers to the project to move its initial 700,000 tonnes per year of LNG, enough to fill one ship per month while the other makes deliveries.
The project is limited in scope by the amount of capacity on the Pacific Northern Gas pipeline, which is less than 100 million cubic feet of gas per day.
BC LNG announced that gas supply for the project will be managed by Tenaska Marketing Canada, a division of private U.S. gas marketing and power company TMV Corp.
BC LNG’s export license allows it to move up to 1.8 million tonnes per year of LNG.
Bill Gwozd, a senior vice-president with Calgary consulting firm Ziff Energy, agreed natural gas prices in Alberta won’t get much of a charge from startup of the BC LNG plant.
He said his firm figures that each increase of one billion cubic feet per day in demand from any source drives the average North American gas price up by about 25 cents per gigajoule — but even that minor impact can be blunted if producers step up output.
Still, he said he likes BC LNG’s small-scale project, its speed to production and its foresight in setting its project offshore to avoid issues related to building on land.
“I view them as a nimble rabbit rather than some of the big slow tortoises,” he said. “They can hop in and out and get something figured out.”
Interest in LNG exports from Canada has been accelerating with the news last month that California-based Chevron would buy into and operate the Kitimat LNG project, the first phase of which is being designed to produce five million tonnes of LNG per year.
Chevron is also operator and part owner of the Gorgon gas field and related LNG development in Western Australia — the world’s largest new liquefied natural gas project.
Malaysian state-owned Petronas, which recently bought Progress Energy Resources of Calgary, has commissioned a feasibility study into an LNG facility on Lelu Island near Prince Rupert.
Royal Dutch Shell PLC and three Asian partners — PetroChina, Mitsubishi Corp. and Korea Gas Corp. — have also announced plans to build a liquefied natural gas export terminal in Kitimat.