Buttressing Canada's position in the global race to export liquefied natural gas, TransCanada Corp. announced Wednesday that it plans to build a $5-billion pipeline to transport B.C. shale gas to the West Coast and onward to lucrative Asian markets.
The deal will see TransCanada build and operate a link to deliver natural gas to Lelu Island near Prince Rupert where Progress Energy Canada Ltd. – now a subsidiary of Malaysian state-owned firm Petronas – plans to build the massive Pacific Northwest LNG export facility.
The announcement shores up national efforts to catch up and compete with established LNG export projects in Australia and the Middle East, and will help Canada take advantage of strong natural gas prices in Asian markets versus depressed levels in North America.
"It's a huge opportunity for Canada. But to capture that opportunity, we need to compete on a global basis," TransCanada's president and chief executive officer Russ Girling said in an interview Wednesday.
The proposed 750-kilometre pipeline will bring natural gas primarily from B.C.'s rich North Montney region to Pacific markets by late 2018, subject to regulatory and corporate approvals. Initial pipeline capacity is pegged at 2.0 billion cubic feet a day with the ability to expand to 3.6 billion. TransCanada estimates the pipeline project will create 2,500 construction jobs.
The announcement is the second recent B.C. victory for TransCanada. Last June, the company signed with Royal Dutch Shell PLC to build the $4-billion Coastal GasLink pipeline that would bring B.C. natural gas to the Kitimat area, where Shell and several Asian partners are planning another huge LNG terminal. Mr. Girling said his company's pipeline building plans in B.C. are now in excess of $10 billion.
"This is in the sweet spot of our backyard in terms of an opportunity to grow earnings beyond the 2015 time frame," he said.
And the avalanche of spending is unlikely to end at the many billions it will take to build pipelines and LNG facilities. Plans for additional investment are already under way as companies seek to buy reserves of natural gas that can be exported. Not far from the site selected by Petronas for its plant on the B.C. coast, Reading, England-based BG Group PLC has chosen its own plot of waterfront for LNG exports.
BG already has a deal in place with Spectra Energy Corp. to build a $6-billion to $8-billion pipeline to the water. What it does not have is energy to fill that pipe – or a deal with a company that might buy shipments of liquefied gas. But in an interview, the company said it has begun negotiations with partners and intends to secure its own Canadian gas supplies.
"The next phase will be to develop our upstream position and our upstream partners," said Steve Swaffield, president of BG's Canadian operations. He added: "I can't comment about any of the individual discussions that we are having. I can confirm that we are having discussions."
Observers have suggested BG might partner with CNOOC Ltd., which is contemplating LNG exports through its pending acquisition of Nexen Inc. A series of smaller companies also have title to gas-rich land that BG might covet. Investors said Painted Pony Petroleum Ltd., Tourmaline Oil Corp., Trilogy Energy Corp., Peyto Exploration & Development Corp. and ARC Resources Ltd. could all be potential suitors for the British company – or perhaps even for Chevron Corp., which may require larger gas reserves to feed the Kitimat LNG project it recently agreed to operate. Larger companies such as Suncor and Talisman also hold prospective land in the area.
Some of the more important players in the global LNG trade are looking with keen interest at Canada's westernmost province.
Petronas is planning for a 12-million-tonne-a-year terminal; BG's is 13 million to 14-million tonnes in size. Both can be expanded by 50 per cent. If built to full capacity, these two projects alone will move nearly 40 million tonnes of gas off the northern B.C. coast. The Port of Vancouver, the busiest in western North America, moved 123 million tonnes of all commodities in 2011.
The LNG plans, however, are complicated by their cost – 40 million tonnes could cost as much as $50-billion to build today – and Canada's relative global position. Canada is late to LNG. Australia and Qatar have massive plants already built. Mozambique is moving quickly on huge new facilities. Cost overruns have plagued terminals elsewhere, and there are concerns about worker availability in Canada.
Prince Rupert, meanwhile, has its own troubles: the number of first nations that claim the area portend difficult negotiations. Difficult geographic surroundings, with mountains and rivers and landslides, place large obstacles in the way of pipelines. Numerous permits and approvals must yet be secured.
For its part, TransCanada is no stranger to contentious projects, having battled fierce U.S. opposition to its Keystone XL plans in recent years. In B.C., the company said community consultations for its Gaslink pipeline to Kitimat area have already begun and the same process for its newest proposed project will begin immediately.
"We have to make sure that we listen before we start drawing lines on maps,' Mr. Girling said.