US Discount LNG Deal with Asian Buyers Shocks Canadian Industry, Undermines Plans for Bigger Profits Abroad


Read this story from the Vancouver Sun on a recent deal by American company Cheniere Energy Inc. to sell Liquified Natural Gas (LNG) to Asian buyers at heavily discounted North American rates. The deal alarmed the Canadian natural gas industry, which is currently pursuing LNG exports to Asia on the premise of fetching the considerably higher prices Asian markets currently pay for the product. (Oct. 4, 2012)

British Columbia’s first major liquefied natural gas export terminal is facing a significant new challenge after a rival U.S. exporter signed a deal undercutting the hoped-for price for selling gas into Asian markets.

David Calvert, an Apache Corp. vice-president and manager of the Kitimat LNG terminal said U.S.-based Cheniere Energy Inc. set a dangerous precedent by agreeing to sell gas from its proposed Louisiana export terminal based on heavily discounted North American gas prices.

“Cheniere did a deal … that created quite a ripple through the marketplace,” Calvert said Tuesday, adding the deal has created “unrealistic” expectations for products from Kiti-mat LNG.

Speaking to an Energy Roundtable audience in Calgary on Tuesday, Calvert said the Kitimat site is cleared for a new terminal and work is starting on the pipeline route.

But, he added, final sanctioning of the terminal hinges on winning long-term sales contracts, which is not a done deal.

Calvert’s comments are significant, given Premier Christy Clark has founded much of her BC Jobs Plan on the development of as many as five plants exporting LNG into Asian markets.

Last year, Clark promised the first plant would be fully operational by 2015.

“Today, we’re looking at perhaps five big liquefied natural gas proposals that, if built, could add over a trillion dollars to our GDP in direct upstream and downstream benefits over the course of 30 years,” Clark said Tuesday in an address to the University of Calgary.

“That’s the potential of producing four trillion cubic feet per year of exports by 2020,” she continued, adding the land is already being cleared for Apache’s plant in Kitimat.

Apache needs contracts based on oil prices to justify the cost of the planned $4.5-billion LNG export plant and pipeline in British Columbia, Calvert said. The plant is a joint venture of Apache, EOG Resources Inc. and Encana Corp.

“The bottom line is for LNG producers to provide the stability buyers are looking for and for us to make the significant capital investments required for greenfield LNG projects, we must have long-term contracts with prices that reflect these critical consideration and realities,” said Calvert.

“We remain convinced that oil-linked pricing is critical to the viability of our Canadian LNG industry.”

North American natural gas prices have plunged amid a glut caused by rising shale output, increasing the interest in exports to Asia. Japan paid $17.58 per million British thermal units to import gas from the U.S. in July, according to LNG Japan Corp. Natural gas for November delivery settled at $3.531 per million Btu on Tuesday on the New York Mercantile Exchange.

Energy, Mines and Natural Gas Minister Rich Coleman said Wednesday he is not concerned about the pricing issue.

“Today we have three of the major players on liquefied natural gas in the world who have all taken up positions in British Columbia, that’s Shell, Petro-nas and British Gas. They’re all pretty aggressive.”

New Democratic Party energy critic John Horgan was more cautious about the outlook.

“I’ve said all along that this is a challenge and that the markets will determine if this is successful or not,” Horgan said Wednesday.

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