Canadian gas producers can expect a surge of Asian investment in their British Columbian shale-gas fields as the race heats up to build LNG capacity to serve Pacific Rim markets.
Faced with the prospect of a long-term glut of gas and low prices in North America, producers in western Canada have more incentive than ever to build liquefied natural gas terminals on the west coast to allow exports into the premium-priced Asian market.
But construction costs for the export facilities are rising, and the companies will need to develop more shale-gas reserves to backstop their ambitious LNG plans.
As a result, the industry will need to find new buyers and partners among Chinese, Korean and Japanese companies eager to lock up a secure supply of reasonably priced gas, Andrew Potter, analyst for CIBC World Markets Inc., said in a report Wednesday.
Already, Asian companies are teaming up with project proponents such as Royal Dutch Shell PLC on plans for liquefaction and export facilities, and Mr. Potter said that trend will accelerate.
North American production has soared in recent years as a result of the shale gas boom. With a supply glut and relatively mild temperatures this winter, gas prices have plunged to 10-year lows, falling another 12¢ – or 5 per cent – on Wednesday to close at $2.38 (U.S.) per thousand cubic feet in New York.
The U.S. Energy Information Administration recently issued a forecast that suggests gas prices will remain below $6 per thousand cubic feet until at least 2025.
But there is a supply crunch in Asia, where fast-growing economies and a switch from nuclear to natural gas-fired power is driving demand growth. Gas prices in Asia are tied to crude oil, and LNG shippers are receiving an estimated $12 to $15 per thousand cubic feet for their gas.
With the current glut of gas expected to persist for the next decade, companies in North America are scrambling to build LNG export terminals, with four proposals in western Canada and eight in the United States. While not all of them will get built, Mr. Potter forecasts LNG exports from North America to overseas markets will hit 8 billion cubic feet per day by 2020 – a figure roughly equivalent to Canada’s current exports to the United States.
The Asian option is especially critical for Canadian producers, who have seen their exports to the U.S. drop by 31 per cent in the past year, thanks to a relatively warm winter and booming U.S. production.
New Chinese, Korean and Japanese companies are entering the field, Mr. Potter said, and existing players are buying producing assets to support their involvement in the export terminals.
PetroChina , for example, has partnered with Shell in its global LNG effort, and is part of a consortium looking to build export facilities in Kitimat, B.C., where Shell recently purchased a shuttered industrial site. Reports out of Asia suggest PetroChina is looking to purchase a minority interest in Shell’s B.C. gas fields.
“Some of the parties such as CNCP [China National Petroleum Corp.]that are involved in early stage liquefaction proposals, they just don’t have the upstream resources to back it,” Mr. Potter said in an interview.
“That’s the stage we’re at. We’ve seen a lot of companies get on board on the liquefaction side, and the next step is they’ve got to find the resources to underpin those facilities in the long term.”
Wenran Jiang, an expert on Chinese energy firms from the University of Alberta, said Beijing has targeted Canada as an increasingly high priority for investment, particularly for shale gas and conventional oil assets.
The state-owned companies “are looking at potential LNG projects and see large potential in North America, and the price of many of these assets is very low,” Mr. Jiang said.
He added that Calgary-based companies are “aggressively courting” Asian investors. “It’s a buyer’s market,” he said.