Another Canadian LNG project blocked as hits keep coming for natural gas producers

CALGARY – The Coastal GasLink pipeline connected to a massive liquefied natural gas export project in Kitimat is not the only gas project facing challenges on the West Coast. Last week, the U.S. energy regulator dealt Calgary-based Pembina Pipeline Corp. a surprise setback in its bid to build the US$8-billion project on the U.S. West coast.

The U.S. Federal Energy Regulatory commission voted 2-1 to delay a decision on the gas export facility on the Oregon coast that would send Canadian gas to Asian markets.

It was the second time FERC had denied or deferred the Jordan Cove application, and stymies effort by landlocked Canadian gas producers to find new markets beyond Alberta.

“I’ve become so numb to all of these delays,” Raymond James analyst Jeremy McCrea said, adding that the FERC decision was disappointing but not necessarily surprising given it’s become more difficult to build major energy projects across North America. “It’s more of a surprise if something does go through,” he said.

The delay to Jordan Cove LNG comes as protesters across Canada blockade commuter and freight railways in solidarity with a breakaway group of Wet’suwet’en hereditary chiefs who have opposed the Coastal GasLink pipeline, which would connect gas fields in northern B.C. with the under-construction $40-billion LNG Canada export facility near Kitimat, B.C.

At one point, there were more than 20 proposed LNG export projects proposed on the B.C. coast but so far the Royal Dutch Shell Plc-led LNG Canada is the only project that is under construction, while other projects have been abandoned or delayed.

Amid all the turmoil, domestic gas companies and pipeline companies are looking for more inventive ways to move natural gas out of Western Canada, clearing a glut in Alberta and B.C. that has resulted in rock-bottom prices.

It’s more of a surprise if something does go through

Raymond James analyst Jeremy McCrea

Calgary-based pipeline giant TC Energy Corp. announced earlier this month it would spend $1.3 billion to expand its natural gas pipeline network in a bid to move more Canadian gas to “growing LNG export and other markets along the U.S. Gulf Coast.”

TC Energy president and CEO Russ Girling said on an earnings call that spending, in combination with other projects the company is pursuing, “will provide Western Canadian production a seamless path to growing LNG export markets and other markets along the U.S. Gulf Coast.”

McCrea said the additional pipeline connections to the U.S. Gulf Coast and other markets are necessary as major projects in Canada have been delayed.

Strategic investors have begun looking for smaller projects, McCrea said. “The going baseline is, it’s too difficult to put forward big projects,” he said.

Natural gas producers in Alberta and British Columbia are also focused on finding creative ways to move more of their gas into competitive markets in populated areas in Central Canada and the U.S.

Seven Generations Energy Ltd. announced on Feb. 10 it had signed a contract to supply natural gas to Quebec natural gas distributor Énergir s.e.c. after a year-long environmental, social and governance, or ESG, auditing process.

The auditors visited Seven Generations sites, interviewed First Nations affected by the company’s operations and met with Alberta regulators in what company president Marty Proctor called “a pretty thorough process” resulting in a EO100 certification — named for New York-based non-governmental organization Equitable Origin.

Proctor said part of the motivation for undergoing the audit was Seven Generation’s desire to continue diversifying its markets away from Alberta’s AECO benchmark natural gas price, which has underperformed other benchmarks in North America, and find additional utility customers focused on ESG scores like Énergir.

“We have the majority of our gas going to the U.S. Midwest,” Proctor said, adding that now more Canadian gas will make its way into Quebec, which had previously been served largely by production in Pennsylvania.

“One of the thing we think we’ve achieved is to really bridge Canada,” Proctor said of sending Alberta gas to Quebec.

Data from AltaCorp Capital shows AECO prices in Alberta averaged US$1.40 per thousand cubic feet on Tuesday, which was 47 cents off the Henry Hub benchmark price in Louisiana of US$1.86 per mcf.

Seven Generations is also one of a group of 10 Calgary-based natural gas producers that have formed the Rockies LNG Partners consortium tasked with developing its own LNG export facility on the West Coast after delays and cancellations of other projects.

“We need to get to a (final investment decision) in late 2022,” Rockies LNG president and CEO Greg Kist said in an interview, adding that he believes Asian markets for LNG will improve by 2027.

“It’s a challenging environment today,” Kist said, noting that LNG prices in Asia are “very weak.”

AltaCorp data shows LNG in Japan traded for US$5.76 per mcf on Tuesday, which is higher than prices in North America but a fraction of its price in recent years.

Neither Kist nor Proctor would say if Rockies LNG would try to re-activate an LNG project that had been shelved or buy a stake in a project currently before the regulators.

Kist was previously the president of Pacific NorthWest LNG, a project sponsored by Malaysia’s state-owned oil giant Petronas Bhd and its international partners that was shelved in July 2017.

However, Kist said the consortium is aiming to announce partners for the project “next quarter” and is working on an aggressive timeline in an attempt to begin work in 2022. He said the company is currently negotiating with LNG buyers in Japan, engaging with Indigenous groups and looking for companies to build an LNG terminal and to build a connected pipeline.

Asked about the blockades and protests against the Coastal GasLink project, Kist said he believes LNG Canada did a “tremendous job” in signing benefits agreements with all 20 elected Indigenous band councils along the route but that some opposition can’t be avoided.

“We get to learn from that as well,” Kist said.

Financial Post

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