News
Shell Canada throws its hat into LNG ring But can four export terminals in B.C. really be viable?
Jul 19, 2011, Alberta Oil Magazine (Read article on originating site site)
Back in the middle part of the last decade, followers of the oil and gas industry know there was a huge push to build facilities in North America to import liquefied natural gas (LNG). The rush came because there was a legitimate fear that declining production from conventional sources of natural gas was not going to be able to meet continental demand for the cleanest burning fossil fuel. At one point there were 47 import terminals in the permitting phase.
The “shale gale” that has struck the United States has changed that supply picture and in hindsight, many people in the energy industry erred in investing time and money on developing these import schemes. But now that Shell Canada has announced it has partnered with China National Petroleum Co., Korea Gas Corp., and Mitsubishi Corp. to consider building yet another export terminal to ship LNG from British Columbia to overseas markets, I wonder if today’s energy players are falling into a similar trap.
The Shell Canada announcement means there are now four potential liquefaction facilities being considered for the B.C. coast – Kitimat LNG, B.C. LNG Export Co-operative LLC, as well as an unnamed project being pursued by Progress Energy Resources Corp. and Petronas.
While LNG fever is clearly gripping B.C., a note of caution is in order. One question I have is where these export terminals would be located. The port of Kitimat is the proposed site for the Kitimat LNG and the B.C. LNG Export Co-operative LLC projects and it would be a logical location for the other two. But keep in mind Kitimat would also be the terminus for Enbridge Inc.’s embattled Northern Gateway oil pipeline.
Alberta Oil associate editor Jeff Lewis recently visited Kitimat for a story that appears in our July issue of the magazine. It’s not mentioned in the story, but he pointed out to me that the Douglas Channel – the 90 kilometer inlet where Kitimat is located – is not that big of a waterway. Let’s say Northern Gateway, Kitimat LNG and B.C. LNG Export Co-operative LLC projects were all built, that would be a lot of tankers plying the Douglas Channel. Could the inlet handle that amount of traffic, plus the additional tankers that would be needed if two more LNG terminals were built in Kitimat? And if Kitimat isn’t a suitable location, then where else can the Shell Canada, Progress Energy and their Asian partners plunk their projects? (Nearby Prince Rupert might not work either).
The other question that must be answered is whether there will be enough feedstock for all of these terminals. It is the shale and tight gas from the Horn River and Montney basins in B.C. that will supply these export projects. There is a lot of interest in these plays and potential is huge, with the National Energy Board and the B.C. Ministry of Energy and Mines recently assessing the marketable gas in the Horn River alone at 78 trillion cubic feet. But that’s just potential at this point, not the reality.
The reality is development is still in the nascent stages in the Horn River and the Montney. Gas production in 2010 from these two basins totaled just 0.8 billion cubic feet per day. In a recent Peters & Co. research note on the Horn River, it noted that only 15 wells there have greater than 12 months of production data. That means there isn’t reliable data on production and decline rates for these wells. How much gas will the industry be able to coax out of northeastern B.C.’s tight rocks? The answer is nobody really knows right now. And that won’t impress Asian customers who are looking for reliable supplies of LNG so they can lock into long-term shipping contracts that ensures them security of supply. I’d be surprised if more than one of these proposed LNG terminals is built in the next 10 years.