Because of U.S. shale’s cheap supply of liquefied natural gas (LNG) and low cost shipping, Canadian LNG producers are struggling to compete. As a result, Malaysia’s state-run Petroliam Nasional Bhd – better known as Petronas – recently ended a $27 billion bid to build a LNG terminal in western Canada.
The investment would have been Petronas’ single-largest foreign investment, and the export site would have been a great boon to Canadian LNG producers for shipping their gas to Asian markets.
The move came as a blow to the Canadian energy industry, including TransCanada Corp., who had already started building the North Montney Mainline. This pipeline would have supplied gas to Petronas’ LNG terminal.
Canada is still reeling from other big oil firms pulling out and selling nearly $23 billion of their Canadian assets so far, this year.
Petronas still has LNG production assets in Canada, including Progress Energy Canada Ltd located on the country’s Montney formation. Petronas purchased Progress in 2012 for $5.2 billion (Canadian) with the intent to build a terminal in western Canada. Now Petronas has to look to U.S. exporters to move their product.
The Montney formation is located in western Canada in the provinces of British Columbia and Alberta. Canada’s National Energy Board estimated in 2013 that the formation holds roughly 449 trillion cubic feet of natural gas, which is nearly half of the total reserves of the world’s leading exporter of LNG, Qatar.
Because of regulatory delays and opposition from environmentalists, Canadian LNG producers are having difficulty getting their product to global markets. “Canada has a tremendous resource, but market outlets are limited,” commented Matthew Phillips, the director at Guggenheim Securities LLC in Dallas.
Canadian producers have to look to the U.S. to export their products. Houston-based Cheniere Energy is an option since they own two LNG terminals on the Gulf Coast, the Sabine Pass terminal in Louisiana and another terminal under construction in Corpus Christi, TX.
Cheniere Energy already has a deal with a company that produces LNG from the Montney formation, Calgary-based Seven Generations Energy Ltd, and Cheniere is actively looking for additional Canadian customers.
Progress Energy chief executive officer, Mark Fitzgerald, was asked about turning to U.S. exporters to move the company’s LNG. Fitzgerald answered, “That resource that we own is world class and highly competitive. We’ll look at every option that we can to bring that to market.”
Unfortunately for the Canadian producers, U.S. natural gas is abundant and cheap with producers from the Marcellus shale basin in Pennsylvania and West Virginia providing just one example of the American competition. Infrastructure is already set up to get this gas to terminals and on to domestic and global markets.
The chief executive officer of Calgary-based Advantage Oil & Gas Ltd., Andy Mah summed up the Canadian LNG producers’ problem, “It means we’re beholden to the U.S. Until we can start recognizing that we have something of value and make it happen, we’re going to be at their mercy.”
Article written by Raymond Arrasmith.