Dealing with rising costs: how to develop Canada’s LNG projects

Todd Peterson's picture
Todd Peterson, Advisor LNG Projects, Itochu Group
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Todd Peterson, Advisor LNG Projects at Itochu Group, talks about the cost challenge to move Canadian LNG projects forward.

"All LNG projects face similar challenges like marketing and permitting which have a cost but EPC costs are certainly one of the most important. Brownfield projects are more cost efficient for obvious reasons. The USA is a good example. The first LNG export projects were all brownfield.

Except for Canaport on the east coast, all the other Canadian projects are various shades of greenfield. On the west coast you have different advantages and disadvantages in the cost of building a project. For example, there is already a certain amount of infrastructure in Kitimat with several industrial plants, oil installations, a port and there is also a small natural gas pipeline (PNG) built in the late 60’s. The PNG pipeline works for a small project like Douglas Channel.

In Prince Rupert you have an excellent port right on the Pacific Ocean. Kitimat is 90 km up a channel. Rupert also has a small pipeline which is an extension of the PNG line in that goes to Kitimat. Neither of these pipelines have the capacity or can be expanded for a large scale liquefaction project. The cost of new large diameter pipeline and the cost of maintenance are huge. The environmental impact of a large pipe for each project will also be huge. This leads to the question of how many pipelines the First Nations and the government in Victoria will allow and permit? The Canadian Rockies are a formidable challenge and stunningly beautiful. Similar projects could be the 2 Andes projects in the 90’s from Argentina to Chile but were much smaller in distance and diameter (20” and 24”). One was built by Nova Corp. now TransCanada. Costs and permitting were also very different from today.

Closer to Vancouver there are several projects that benefit from supporting infrastructure like pipelines and gas distribution systems nearby. None of this helps in the cost of development of the reserves. Interestingly, there are 2 projects in Oregon which might be more cost competitive and quicker to develop than the BC projects. There, FERC and local approvals are daunting but gas supply and pipeline issues are less challenging and costly. Yes, Canadian natural gas can be exported from the US and still be competitive.

The major pipeline companies can certainly build the cross BC pipelines it’s just a matter of cost. Compared to the US, Canada has a lot more development and pipeline cost to face. The problem is that there are too many projects that want to come on stream in the same time frame. Cost overruns when trying to build so many projects at the same time just won’t work in such a remote area. Just look at Australia. If crude goes back to $150 and HH stays below $5 maybe."

Considering rising project costs, how can Canada's LNG industry compete in the global LNG market? Let us know your views.

We will be discussing the impact of rising costs on Canadian LNG projects with some of the biggest LNG experts including Mr Todd Peterson at the conference Canada LNG Export in May. Follow the banner below to find out more.

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