Canadian gas producers using U.S. to reach LNG markets
U.S. liquefied natural gas exporters have been courting Canadian producers of the commodity, and analysts expect more domestic gas will move south in the absence of Canadian LNG projects.
Calgary-based Advantage Oil & Gas Ltd. president and CEO Andy Mah says there have been conversations between Canadian gas producers and U.S. LNG proponents about shipping more Canadian gas to American export facilities.
“The North American gas market is going to be one market,” Mah said, adding that pipeline connections between various gas basins and demand centres are improving.
At a recent industry conference, Patrick Ward, president and CEO of Calgary-based gas producer Painted Pony Petroleum Ltd., said demand for Canadian gas is growing, in part because of sizable exports from LNG terminals in the U.S.
“The U.S. guys started on LNG when we started on LNG (on the British Columbia coast) and the U.S. is already exporting over 10 billion cubic feet a day,” Ward said. “They are buying our Canadian gas for $2.50 Canadian and selling it to the Mexicans for US$3.50.”
Seven Generations Energy Ltd., a Calgary-based gas producer, has an agreement to send its gas through an LNG terminal operated by Houston-based Cheniere Energy Inc. and had previously announced it was delivering gas from Canada to the Henry Hub pricing point in Erath, La.
Seven Generations president and CEO Marty Proctor said on a recent earnings call the company was sending 100 million cubic feet per day to the hub but added, “Ultimately, we are still keen to find a way to backstop, use our resources to underpin investment in West Coast LNG.”
Eben Burnham-Snyder, spokesman for Cheniere, wouldn’t name specific Canadian natural gas companies, but confirmed his company has been in talks with multiple producers about sourcing their product for its two LNG terminals on the U.S. Gulf Coast. “We’ve had talks with every supplier you can think of,” Burnham-Snyder said. “We’re willing to talk to any supplier we can access — in Canada and the U.S.”
Martin King, director of institutional research at Calgary-based GMP First Energy, said he expects similar discussions in the coming months as American companies start to shop around for more gas for those plants. “The LNG plants in the U.S. are going to need U.S. domestic supplies — they might need Canadian supplies as well,” King said.
King also said that no new LNG export terminals on the West Coast have been sanctioned in the past 18 months, and he is bearish on the prospects of Canadian LNG proposals. “I would love to be proven wrong.”
Dan Tsubouchi of Calgary-based Stream Asset Financial Management said he is aware of Canadian companies considering using American LNG facilities. “I know that a number of Montney producers are trying to figure out what the opportunity is,” he said.
Domestic producers are trying to move more of their gas out of Alberta, as they’re concerned the local AECO gas price hub could be oversupplied with gas if no LNG projects are built.
“The last thing you want to do is have your gas trapped in Alberta,” Tsubouchi said.
King said that even without U.S. LNG terminals processing Canadian gas producers would benefit from the growth of the U.S. LNG industry even as the domestic industry has stalled.
“Whatever is being shifted out of the southern U.S. for exports needs to be backfilled, either by U.S. supplies or Canadian supplies so there’s lots of opportunities to get that gas to market,” he said.
King told oil and gas executives in Calgary recently that the discount domestic producers are forced to accept for their gas should tighten relative to the NYMEX price as demand for Canadian gas grows south of the border.
“Once that call goes out for more Canadian gas, you’re going to see these AECO prices get more of a lift, and we’ll see that differential tighten up,” he said. “The U.S. is coming up short of gas supply. They will buy it and they will pay more for it as a necessary consequence. That’s going to help tighten up that differential.”