British natural gas giant BG Group PLC has joined the rush of companies swarming Canada's West Coast in hopes of exporting energy to Asia.
The company, a global liquefied natural gas supplier, is looking to Prince Rupert, B.C., as a potential site for a terminal that could be used to load Western Canadian gas onto ships bound for consumers in Japan, South Korea and China.
"We've entered into an agreement with the Prince Rupert Port Authority to consider the feasibility of an LNG development," said David Byford, a Houston-based spokesman with BG.
BG brings to six the total number of companies and groups publicly pursuing liquefied natural gas (LNG) projects on the British Columbia coast, near prolific fields of shale gas. Faced with gas prices that have plunged to decade lows, North America's energy industry has looked to LNG as a way to access Asian markets, where gas prices are much higher.
That has created an extraordinary corporate race to the coast, as companies tussle to grab real estate and gas supplies. The entrance of BG, which runs a fleet of LNG ships and is pouring billions into new LNG projects around the world, is further evidence that British Columbia and Canada's natural gas reserves have attracted the attention of global heavyweights. Indeed, some are now comparing West Coast LNG development to the oil sands, where many of the world's most important energy companies have secured positions.
In Prince Rupert, BG has secured access to a 200-acre section of land on the Ridley industrial development site, owned by the Prince Rupert Port Authority. The port normally provides companies 12 to 24 months to assess whether they can make a project work.
The British company was chosen from several interested parties because it has "a solid background in LNG and the capacity to see a project through," said Shaun Stevenson, a vice-president with the port. "They have some capacity and some existing relationships in the marketplace, and had a common user approach where it's not a single producer looking at a solution, but a gateway capacity for probably a number of producers."
BG joins an increasingly crowded field. Apart from five other proposals already made public – including partnerships led by Apache Corp., Royal Dutch Shell PLC., BC LNG Export Co-operative LLC, Petronas and Nexen Inc. – a series of other companies have quietly chased projects. One proposed bringing LNG to Prince Rupert by rail. Several sources said Japanese firm Itochu has looked at exporting gas from Kitsault, a once-abandoned molybdenum mine north of Prince Rupert that is being revived. A spokesman with Itochu declined comment.
Sources said Exxon Mobil Corp., which has substantial natural gas reserves in northeastern B.C., has also been examining LNG options. Pius Rolheiser, a spokesman with Imperial Oil Ltd., which is majority-owned by Exxon, said in a statement: "Imperial continuously reviews a variety of opportunities to increase value to our shareholders. As a matter of practice, and for competitive reasons, we do not discuss specific strategies."
Existing projects are also changing. Kitimat LNG, for example, needs to build a new pipeline called Pacific Trails to feed its project. The project recently applied to expand the size of that pipe, from a diameter of 36 inches to 42 inches. That would add 10 per cent to the construction price tag, but substantially boost the volume of gas it could funnel to the coast.
For other companies, the bid to secure land and pipelines has produced sharp-elbowed competition, as energy giants wrestle for a foothold. Near Kitimat, where Shell and Apache are planning projects, desirable waterfront real estate is limited.
Other major issues loom. It's unlikely the western labour force, already strapped by a resurgence in the oil sands, will be able to build many LNG terminals, which require some workers with specialized skills. Worker shortages have caused significant problems in Australia, which is also experiencing an LNG boom, and has seen prices spike.
In a recent research report, CIBC World Markets Inc. analyst Andrew Potter pointed out that Australian projects cost a third more or nearly double the current estimates for terminals like Apache-backed Kitimat LNG – suggesting the price of building facilities in B.C. could be dramatically higher than currently expected.
And there simply isn't enough gas to feed all of the proposals. The combined potential capacity of projects currently being contemplated add up to a possible 10 billion cubic feet a day of gas – a sum it seems unlikely will ever flow to the coast. By comparison, all of Western Canada today produces just over 14 billion cubic feet a day.
That suggests to some that development will be relatively slow. It's unlikely, for example, that B.C. will see more than two new export terminals built by 2020, said Todd Kepler, an analyst with Cormark Securities.
It also suggests consolidation must happen. Investment bankers said it would make sense for Kitimat LNG, for example, to sell its project to a major international energy company with LNG experience.
"The next move is what happens with [mergers and acquisitions]" Mr. Kepler said. "It's going to be similar to the oil sands rush. The first guys are there to sew it up, so for outsiders to get in and play this, they're going to have to buy their way in."
THE LNG PLAYERS
Companies: Apache Corp., Encana Corp. and EOG Resources Canada Inc.
Description: The project, which was granted a 20-year export licence in October, will be served by Pacific Trail Pipelines LP's natural gas pipeline with a connection to the Spectra Energy pipeline system and natural gas supplies in northeastern B.C.
Size: Two trains of 700 million cubic feet a day.
Companies: Royal Dutch Shell PLC, Korea Gas Corp., China National Petroleum Co. and Mitsubishi Corp.
Description: Shell says it is studying LNG options, and recently purchased marine and dock facilities in Kitimat from Cenovus Energy Corp.
Size: 1.8 billion cubic feet a day, with a possible expansion that would double this.
BC LNG CO-OPERATIVE
Company: A co-operative, with 50 per cent ownership by the Haisla First Nation, and co-op shares owned by 16 members, including Talisman Energy Inc. and Tenaska Inc.
Size: 125 million cubic feet a day and a possible second train that would double the size.
Company: BG Group PLC
Description: Has secured an agreement with the Prince Rupert Port Authority to study an LNG terminal on port lands.
Size: Undisclosed. Sources suggest new projects, to be economic, must be two billion cubic feet a day and higher.
OTHER POTENTIAL SITES
Locations: Kitimat, Prince Rupert, Stewart, Bella Coola, Port Simpson, Kitsault
Companies: Progress Energy Corp. with Malaysian giant Petronas; Nexen Inc. with Japan's Inpex Corp.; others not yet public.
Status: Progress is looking at two trains of 600 million cubic feet a day, with a third possible train bringing the total to 1.8 billion cubic feet; Nexen is at early stage evaluation of numerous gas-marketing strategies, including LNG.