China Is Thirsty For LNG But Canada's LNG industry Is Still Sleeping

Canada has been held hostage to short-sighted political decisions & has to accelerate its efforts to join the LNG party.

According to Reuters, it seems that China's natural gas push is more successful than originally expected creating a supply-demand imbalance that has pushed China’s domestic LNG price significantly higher over the last weeks with the industry-heavy provinces of Hebei and Shandong warning of natural gas shortages and Hebei forcing some users to cut consumption.

According to the linked article above, China's domestic LNG price rose to its highest since 2011, topping 7,000 yuan ($1,061) a tonne in the last week of November while the spot price of seaborne LNG in Asia has also surpassed the high from the 2016-17 winter, reaching $9.85/mmbtu in the week ended Dec. 1. For reference, the spot price of seaborne LNG in Asia was $5.40/mmbtu during the low demand summer period.

On that front, LNG Canada's CEO Andy Calitz recently said that 38 countries are now LNG importers and demand for the chilled gas has grown to 260 million tonnes per year. He said that every year, two or three more countries are added to that list with new LNG markets developing in India, Indonesia and Pakistan.

Meanwhile, Canada is a latecomer to the LNG industry, there is no question about it. Some even say that the country has missed the LNG boat and Canadians have to get their act together on a lot of stuff related to the LNG projects in this country if they really want their LNG industry to get off the ground.

An encouraging sign showed up last week when Steelhead LNG announced that it will continue to explore its proposal for the Kwispaa LNG project southwest of Port Alberni on Vancouver Island, formerly called Sarita LNG. As a reminder, Huu-ay-aht First Nations citizens made a monumental decision and became the first British Columbia Nation to approve a partnership with Steelhead LNG for an LNG export facility last March when Huu-ay-aht citizens voted 70% in support for the proposed Sarita LNG project, as illustrated below:

On another positive note, Woodfibre LNG has already announced that it will proceed with the construction of the first LNG plant in British Columbia that is estimated to cost approximately $1.6 billion, will export approximately 2.1 million tonnes of LNG annually and will create 650 jobs during construction and 100 operational jobs over its estimated lifespan of 25 years. The project is expected to be completed by 2020. Given that the typical LNG plant uses a significant amount of power to cool natural gas to a condensed liquid for shipment by tanker to overseas markets, lower electricity rates prompted Woodfibre’s owner, Pacific Oil & Gas Ltd., to go ahead with the project. The new rates will only be available to LNG producers who choose to power their operations through grid electricity rather than natural gas. The Woodfibre LNG project is the first of roughly 20 LNG proposals in the B.C., many of which have been delayed or deferred because of low LNG prices.

And more good news could be on the horizon. The final decision for the Shell-led LNG Canada project in Kitimat is expected to be announced in 2018. Andy Calitz, Chief Executive Officer at LNG Canada, said a few months ago that work on the up to $40 billion project is "extremely active" and has not been slowed by Malaysian oil company Petronas' decision to scrap its LNG project in the Western Canadian province, nor by a recent change in provincial government. Shell has a 50% stake, PetroChina Co. Ltd. owns 20%, and Japan's Mitsubishi Corp. and South Korea's Korea Gas Corp. each hold 15% cent.

On the flip side, Malaysia’s state-owned company Petronas recently announced that it will not go forward with the Pacific Northwest LNG megaproject and Nexen cancelled the Aurora LNG project a couple of months ago. The goal was the construction of an LNG terminal on Digby Island that was located few kilometres away from Prince Rupert Airport.

Furthermore, the Malahat LNG project in British Columbia was finally scrapped last week. Based on the original plans, Steelhead LNG would construct on the Saanich Inlet a floating liquefaction production and export facility at a 525-hectare site on Bamberton industrial land owned by the Malahat Nation. The Malahat Nation and Steelhead LNG announced the partnership in August 2015 and this was was one of 20 LNG proposals in various stages of development, with a variety of regulatory hurdles to face, at the time.

However, the LNG industry in the U.S. is not sleeping but tries to keep pace with the rising LNG demand around the world. According to Dominion Energy, Cove Point LNG export terminal on the Chesapeake Bay in Maryland will be on line by year end, while similar projects in the U.S. Gulf Coast will be completed in 2018 such as Freeport's LNG and Kinder Morgan's Elba Island LNG project, as illustrated below:

On top of this, Russia is another country that strengthened its presence in the Asian LNG market a few days ago by launching a €23 billion LNG plant in the snow-covered plains of the Arctic, and now Russia hopes to surpass Qatar to become the world’s biggest LNG exporter. The first shipment from the Yamal LNG plant took place a few days ago amid -28 degrees Celsius weather in the port of Sabetta on the Yamal Peninsula above the Arctic Circle, as illustrated below:

The project is owned by Russia’s Novatek, France’s Total and China’s CNPC. The Yamal LNG project is set to start with a production capacity of 5.5 million tonnes per year and increase it to 16.5 million tonnes by the start of 2019.

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Comments (3)
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zenzen70
zenzen70

Well laid-out article. Winter is around the corner so maybe the Canadian giant will wake up!!

Value Digger
Value Digger

Editor

Investorandsurfer, truth is that a Canadian Trump could help the Canadian LNG industry a lot.

Investorandsurfer
Investorandsurfer

China's news is another wake up call for Canada! I wish Canada had its own Trump!



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