Trump keeps Canada’s LNG export dreams alive
China trade spat may spark projects
U.S. President Donald Trump may be helping to revive Canada’s dream of a liquefied natural gas export industry to supply Asia.
The tariffs Trump formally ordered against US$50-billion in Chinese goods threaten to raise construction costs for LNG projects in Texas and Louisiana and provide a leg-up to rival projects on Canada’s Pacific coast. With a global gas glut tightening faster than expected, Royal Dutch Shell PLC and its partners in a proposed B.C. complex are closing in on a final investment decision.
“We’ve got this world-class resource that can produce at very low costs,” said Jackie Forrest at the ARC Energy Research Institute in Calgary. “I think eventually we’ll see a project go forward. Economics always talk.”
LNG Canada — an estimated $40-billion project backed by Shell, PetroChina Co., Korea Gas Corp. and Mitsubishi Corp. — envisions an export facility in Kitimat, B.C., that could eventually ship 26 million tonnes a year of superchilled gas.
The twice-postponed final investment decision is now expected by the end of this year. The partners are already interviewing prospective engineering contractors and on Thursday the provincial government announced tax breaks and other cost-reducing measures to nudge the companies into formally committing to the project.
That development alone has the potential to ship one-quarter of the gas produced in Western Canada, Forrest estimates. That’s critical because the lack of an outlet to overseas markets means Canada’s energy exports are sold almost exclusively into the U.S. at low prices. Canadian producers are hopeful. “From what I can see, I think there’s a lot of optimism that they’ll make a positive final investment decision,” said Cenovus chief executive Alex Pourbaix, whose company extracts gas at its Deep Basin deposit straddling B.C. and Alberta.
Price-killing oversupply threw the economics of LNG exports from Australia to Russia to Mozambique into question in recent years. Malaysia’s Petronas and Chinese state-controlled CNOOC Ltd. cancelled developments worth tens of billions of dollars last year, decisions that all but suffocated Canada’s dream of becoming an LNG heavyweight.
Yet that glut may not be so big after all. With demand growing at the fastest pace since 2011, the oversupply is retreating, according to Bloomberg New Energy Finance.
Wood Mackenzie Ltd. sees the market for new gas suppliers opening around 2022, two years earlier than earlier estimates. Protectionist trade volleys could complicate which projects capture the opportunity.
Tellurian Inc. warned last week that steel tariffs could “significantly increase” the cost of its proposed US$15.2-billion LNG plant in Louisiana. Freeport LNG’s project under construction in Texas is far enough along to escape the duties, but CEO Michael Smith said he worries that if the tariffs spark a trade war with China, the project could suffer because China is a potential long-term buyer of the gas.
In Houston, Bob Harvey, CEO of the Greater Houston Partnership voiced concern about retaliation over tariffs. LNG terminals “are the types or projects that could be in jeopardy with these sanctions,” he said. “China can simply go to Russia, Australia or the Middle East for their LNG.”