Alberta's Gateway to Asia

Shubham Vashist's picture
Shubham Vashist, Vessel Operations, LNG Shipping Professional, Canpotex
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Due to limited access to the international market, Alberta’s natural gas is sold at a significantly discounted rate ($1.76 per MMBtu). Western Canadian LNG (liquified natural gas) export projects, one of the best options to clear the blockage and sell Alberta’s natural gas in the Asian markets, is currently unsustainable due to lower oil and gas prices internationally.

Without additional efforts to decrease the LNG supply costs both from business and governments, Canadian LNG landed cost (supply and shipping cost) is higher than the current spot price in Asia. Government initiatives such as exempting LNG projects in Canada from the fabricated industrial steel components and LNG Modules duties, and the Natural Gas Tax Credit that was proposed by BC (Provincial) government could reduce the LNG landed cost to Asian markets by about $0.40.

Within Canada, the Western Canadian LNG projects are more competitive than Eastern projects due to better exposure to Asian markets and the reduced landing cost. In addition, the higher heating value of the Montney gas (from Alberta & BC border) will be an advantage over lean gas as Asia traditionally prefers richer gas content LNG. Selling rich gas will increase cost-competitiveness by about $0.25 per MMBtu. According to a recent study conducted by the Canadian Energy Research Institute, provided that specific actions are taken by governments and industry, the total landed costs for Western Canadian LNG projects could be reduced to $7.55 per MMBtu from $8.99 in northeast Asia market. The resulting landed cost is recovered by an LNG project with an oil price (Brent) of $65.

The recent change in the US tax legislation gives US jurisdictions an advantage over the Canadian projects, as they can claim a 100% capital allowance in the first year as compared to a 25% capital allowance in Canada. As a result, US Greenfield projects have significantly lower taxes than large Canadian LNG projects.

Therefore, the Western Canadian LNG projects, with additional government incentives and certain cost-savings, could not only be more competitive and can outperform not only US projects, but also reach destination market price levels in Asia.

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