A veritable flood of money is being readied for Canada’s West Coast, where at least seven natural gas export projects are being contemplated.
But is that really the smartest way to find new buyers for the wash of shale gas in Canada and the U.S.?
Canadian Natural Resources Ltd., one of Canada’s top gas producers, says the answer may be no. It may actually be better to spend money converting coal-fired electrical plants to burn natural gas, said Réal Cusson, senior vice-president of marketing for the company.
“LNG is a fantastic market opportunity,” he said, then added: “It’s terribly expensive. The numbers that we have seen from proponents are in the range of $10- to $12-billion of investment for each bcf [billion cubic feet] of capacity. So if we had, say, five of these projects completed on the West Coast, we would be looking at ... $50- to $75-billion to invest. That’s a pretty considerable sum.”
But converting coal-fired electricity to gas could, he said, could sop up a lot more gas, at a price that is “not in the same league” as new LNG terminals.”
“To displace coal, which we’ve already done in a meaningful way, we could probably do two to three times that same volume without the necessity to spend those billions of dollars.”
Mr. Cusson’s comments are an insight into the cost of building LNG terminals that those pursuing projects have been loath to provide.
The ambition, for the likes of Royal Dutch Shell PLC, BG Group PLC, Exxon Mobil Corp., Petronas and Apache Corp., is to send gas to Pacific markets, where it’s worth far more than here in North America. They all envision building terminals that could liquefy natural gas and load it on to ships bound for Japan, South Korea, China and India.
Shell, for example, has not disclosed a budget – though TransCanada Corp. chief executive Russ Girling pegged it at $16-billion, including a pipeline. Nor has BG, although Spectra Energy Corp. said the cost of a pipeline alone to feed the BG project would run $6-billion to $8-billion. Apache has in the past said its project, which is smaller, would cost about $5-billion. But an analysis earlier this year by CIBC World Markets, which compared Canadian estimates with Australian LNG project costs, suggested that figure is low, estimating it could cost up to $6-billion for the terminal alone, not counting the pipeline.
On Monday, Apache spokeswoman Natalie Poole-Moffatt declined to comment on the comments by Mr. Cusson.
“We have not publicly discussed a number because we are still doing our front end engineering and design,” she said.
She pointed, however, to a recent study by the Canadian Energy Research Institute, which concluded that LNG could unlock substantial value for Canadian gas supplies that, in today’s market, are worth little.
“The potential for revenues is substantial compared to current North America pricing,” the report said. It estimated a potential profit of $5 to $7 per thousand cubic feet for north-eastern British Columbia gas that is sold as LNG. Today, gas prices are so low that its producers in B.C. struggle to break even.