Backers of a $7-billion liquefied natural gas export project in Quebec's Saguenay region are betting they can secure a spot in the global market as demand for the energy staple balloons in coming years.
Freestone International LLC, a California-based resource development company, has partnered with global equity investor Breyer Capital to develop a liquefied natural gas export facility at the deep-water port of Grand-Anse in La Baie, Que. The project, called Énergie Saguenay, would be located 16 kilometres east of Chicoutimi.
"We have a very compelling project," said Jim Illich, a former executive with U.S. engineering giant Bechtel Corp. who is spearheading the effort. "There's a huge need for global energy. Europe wants diversification of their gas supply. And we're very close to Europe."
But the hurdles to success are imposing, starting with where to source the gas. It's a problem other Eastern Canadian projects face and highlights that, although the country is awash in natural gas, demands on infrastructure to get it to buyers are growing more intense.
Freestone executive team members visited the region over the summer to explain their plans and build support for the idea. This week, their GNL Québec Inc. project management company launched a formal application for an export license with the National Energy Board, seeking permission to ship up to 11 million tonnes of LNG per year or about 1.6 billion cubic feet of gas a day. The gas would be carried by tanker ship down the Saguenay River, which joins the St. Lawrence.
Mr. Illich and his team are betting they can build one of the world's most efficient LNG facilities, powered by Quebec's vast reserves of hydroelectric power. He said typical liquefaction plants burn 8 to 10 per cent of the fuel coming into the plant to operate the plant itself. Using hydro power will lower capital and operating costs for the project while achieving significantly lower emissions, according to the company.
Securing sufficient hydroelectricity shouldn't be overly problematic. Quebec is in a surplus power situation and its lawmakers have said part of it could be offered to industrial projects at preferential rates.
Securing natural gas supply could be a tougher task.
According to its regulatory filing, Énergie Saguenay hinges on construction of a 42-inch, 650 kilometre-long pipeline connecting the plant to TransCanada Corp.'s eastern triangle natural gas infrastructure. According to the filing, supply will be sourced chiefly from natural gas fields in Saskatchewan, Alberta and British Columba and potentially accessed in a number of ways, including third party agreements with gas producers, marketers and aggregators.
TransCanada's eastern triangle is currently the subject of a fight pitting the company, which plans to shift its mainline natural gas pipeline from the West to carry oil for the Energy East project, against natural gas utilities who say that will curtail supply and raise prices. The triangle transports gas from North Bay to Ottawa, providing a critical line for customers in Quebec and Eastern Ontario.
"This is a very ambitious project but there are supply challenges to resolve," Pierre-Olivier Pineau, an energy specialist at Montreal's HEC business school, said of Énergie Saguenay. "It's difficult to think it will see the light of day."
Developers with LNG export ambitions in Nova Scotia, such as Pieridae Energy Ltd., face the same challenge. In the absence of long-term local supply of natural gas, they're turning to the United States as a possible source but still there are pipeline constraints to transport the gas.
Global imports of LNG totalled 240 million tonnes in 2013, according to U.S. business consultancy IHS, with demand expected to double by 2030. Meanwhile, about 140 million tonnes of capacity is currently under construction or soon to be under construction in various parts of the world to meet demand.
The danger is that the demand window will close for Canadian export projects if they don't receive final investment approvals, said Rafael McDonald, director of IHS's global gas and LNG research unit. More than 13 major LNG export projects have been announced in Western Canada alone over the past five years but progress on most of them is stalled, IHS says.
"What some people say with all these Canadian projects [is that] if you don't play the game, you're never going to win anyway," said Mr. McDonald. "The industry definitely has a history of prisoner-dilemna situations that lead to over-investment."