Canada goes all out to kick-start LNG exports

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Canada’s determination to get LNG exports under way as quickly as possible has been highlighted in recent weeks by several new initiatives – not least a tour of Asia by the premier of the province British Columbia (BC), Christy Clark . It is in BC that most of the proposed projects would be located. A highlight of the tour was a landmark Letter of Intent (LoI) signed by Clark and the CEO of Malaysia’s Petronas, Shamsul Abbas (pictured above with Clark). Following that, it is starting to look possible that at least one export project – the Petronas-led Pacific NorthWest LNG venture – could reach final investment decision (FID) before the end of this year.

For many of those involved in one way or another with getting Canadian LNG exports under way, the past few weeks have been a busy time. The National Energy Board (NEB) has approved export licences for a further two new projects in Canada – Triton LNG and Aurora Liquefied Natural Gas – and another US-based project that would source part of its gas supply from Canada, Oregon LNG.

An LoI to promote project development has been signed not just with Pacific NorthWest LNG but also a smaller project sponsored by Woodfibre LNG, a 2 mtpa proposal that would be located in Squamish, BC. “Woodfibre LNG is advancing rapidly towards reaching a final decision on the construction of the Woodfibre LNG project,” said Imelda Tanoto, the company’s Lead Director. “Reaching this agreement with Premier Christy Clark is a strong signal to our company that the government of BC is committed to the success and viability of the LNG sector.”

Pole position: The really big news of recent weeks, however, was Pacific NorthWest LNG’s success in attracting a fourth buyer, Chinese oil and gas giant Sinopec. That deal, combined with previous sales agreements and the LoI signed with the BC government, effectively puts the $11 billion project in pole position. It now has all the ingredients needed to reach FID bar one – confirmation of the fiscal terms that would be applied by the BC government.

And Clark appears to have promised that these will soon be forthcoming, and that they will be favourable to the project. The LoI says: “Petronas has requested that the province [of BC] provide certainty about costs that are under control of the province and that are applicable only to LNG investments.”

“Securing this commitment from Petronas shows that our strategy for attracting investment to BC is working,” said Clark, after the signing of the LoI. “Our goal is to be the most competitive jurisdiction in the world for LNG, and build a sustainable industry that creates 100,000 jobs, and opportunities for generations to come – and we’re gaining momentum every day.”

For his part, Abbas said: “It is vital for Petronas and its partners that the integrated project . . . remains on track to reach FID by the end of 2014 to meet the energy demands of our Asian buyers. We have been engaging with the government of BC to ensure that the project’s costs remain economically viable. The signed LoI is a positive step . . . as we aim towards our FID at the end of 2014.”

Both parties have agreed to assign senior executives to prepare terms of reference for a Project Development Agreement (PDA) by 30th June. The final PDA is due to be negotiated by the end of November.

Four buyers: The main sponsors of Pacific NorthWest LNG are Petronas and Progress Energy Canada, a company that Petronas recently acquired. In other words, it is primarily a Petronas project. Two other sponsors have joined and become buyers: JAPEX has taken a 10% stake in the project and agreed to lift 10% of the output. Similarly PetroleumBRUNEI has taken a 3% stake and agreed to lift 3% of the output. More recently, Petronas announced that Indian Oil Corporation had agreed to take a 10% equity interest and to lift 10% of the output.

At the end of April, Petronas said that Sinopec had agreed to acquire a 15% interest in the project and to offtake 1.8 mtpa of its output for 20 years – in line with the pro-rata equity/offtake agreements of the other three buyers. In addition, however, Sinopec has signed a binding Heads of Agreement with Petronas for an additional 3 mtpa of LNG for 20 years, to be “sourced primarily from the Pacific NorthWest LNG project”. In other words, over half the project’s output is now covered by long-term agreements.

Petronas commented: “This additional volume of 3 mtpa, combined with the 1.8 mtpa of equity LNG off-take, makes Sinopec one of the largest LNG buyers from the Petronas portfolio.”

Two 6 mtpa trains: The project would consist of two 6 mtpa trains, with a possible third train being added at a later date. The plant would be located on Lelu Island, Port Edward, near Prince Rupert. Gas supply would come from Progress Energy production in north-east BC. The gas would be transported by a proposed 900 km pipeline, the Prince Rupert Gas Transmission Project, to be constructed by TransCanada. Three FEED contracts were awarded in May 2013 to Bechtel, a KBR/JGC joint venture, and a Technip/Samsung Engineering/China Huanqiu joint venture.

Following the completion of the acquisitions by Indian Oil Corporation and Sinopec, Petronas will hold a 62% interest in the integrated project and “will continue to work with potential customers and partners to secure markets for LNG”.

Canada’s NEB has now approved export licences for 11 of the 14 projects that have applied. Two would be located in the state of Oregon in the US, but would source part of their gas supply from Canada. Australia’s Woodside has proposed an LNG plant in BC but has yet to apply for an export licence.

By Alex Forbes