LNG Canada Raises Bar for Gulf Coast Projects

LNG Canada Raises Bar for Gulf Coast Projects
It could become harder to justify US Gulf Coast greenfield LNG proposals.

Now that Shell and its partners in the $31 billion LNG Canada project have decided to proceed with the investment on Canada’s West Coast, it could become more difficult to make the economic case for greenfield LNG export proposals on the U.S. Gulf Coast.

A major reason why, say analysts interviewed by Rigzone, is the difference in shipping costs to Asia from British Columbia versus facilities on the Texas and Louisiana coasts. While LNG carriers from British Columbia would enjoy a straight shot to Asian markets, vessels departing U.S. Gulf Coast terminals do not enjoy direct access to the Pacific Ocean.

“There are no choke or strategic shipping points in this route such as the Panama Canal, straits of Hormuz and the straits of Malacca,” said Madeline Jowdy, senior director of global gas and LNG analysis with S&P Global Platts, adding that Asia is home to three-quarters of the global LNG market.

“West Coast Canada is the closest non-Asian supplier to the north Asian demand centers of China, Japan and Korea,” said Jowdy. “Shipping costs are a critical factor in LNG due to boil off costs. During periods of global gas price convergence, the lower shipping costs are a critical factor in producing the marginal cargo.”

Jowdy added that the trade war between the United States and China – specifically, perceptions about the political risk of supplying U.S.-sourced LNG to China – could dampen the prospects for some next-generation Gulf Coast projects.

“China will account for roughly 35 percent of total demand growth over the next five years and, at this point, they are under-contracted,” Jowdy noted.

The final investment decision for LNG Canada marks a dramatic shift for Canada’s budding LNG sector, noted Jason Feer, global head of business intelligence with Poten & Partners.

“A year, year-and-a-half ago, the Canadian projects all looked very troubled,” Feer said, citing challenges such as high pipeline costs to carry natural gas from wellsites to the coast and controversies tied to transiting land owned by First Nations. “They were all vexing issues for the project developers.”

Feer noted that there’s now a stronger likelihood that other Western Canada LNG proposals will win final approval as well.

“For Canada, I think it’s a big deal,” said Feer, pointing out that Canada’s gas export options are now limited to its southern neighbor – where domestic gas production has risen dramatically. “I think this gives them a good way of continuing to export.”

Acknowledging that project development costs tend to be higher in Canada compared to the United States, Feer noted that Western Canada’s LNG shipping cost advantage – no canals to transit – serves as an offset.

“Gas in Western Canada should be quite competitive,” said Feer. “I think it’s a real challenge to Gulf Coast greenfield projects that go to final investment decision. They need to be able to cut costs to overcome that shipping cost advantage.”



WHAT DO YOU THINK?


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Mike Foster  |  October 08, 2018
Jordan Cove LNG already has the majority of it's pipeline in place with the same shipping advantages. Every west cost project whether in Canada or the U.S. is a win for the Rockies and WCSB.
Baden Kudrenecky  |  October 06, 2018
If you take two extra weeks boil-off, plus the additional shipping charges, that costs about 5% more of gross to ship from the GOM than Canada. That is not insignificant. An additional, and probably much more important factor, are the feedstock costs. It looks like the wholesale costs in the WCSB are about $1/GJ. This is just a fraction of the Henry Hub price. The long term and dedicated supply contracts are probably much less. Therefore, if you equate the North American investment proposals together, the GOM operations are less attractive then previously.
Baden Kudrenecky  |  October 05, 2018
If you take two extra weeks boil-off, plus the additional shipping charges, that costs about 5% more of gross to ship from the GOM than Canada. That is not insignificant. An additional, and probably much more important factor, are the feedstock costs. It looks like the wholesale costs in the WCSB are about $1/GJ. This is just a fraction of the Henry Hub price. The long term and dedicated supply contracts are probably much less. Therefore, if you equate the North American investment proposals together, the GOM operations are less attractive then previously.
Rudolf Huber  |  October 05, 2018
Just a moment, LNG from Yamal must be transported by LNG ships that can survive in Arctic waters (very expensive), are reloaded at a terminal in North-Western Europe onto a normal vessel (cheaper but the reloading is not cheap) and this LNG is touted to be among the cheapest on the market and USGC LNG that goes through Panama is supposed to be expensive because of - Boil-Off? We seem to be on a warpath with the facts. LNG Canada will only force USGC projects to be leaner and more competitive. Which they can if they want to.
Nadir M Patel  |  October 04, 2018
Under the Trudeau Liberals and the NDP, Pipelines in Canada have become hostage to overt and covert interference from radical and green agitators based in the US. Till the 2019 election and a possible Conservative victory, permission granted for any pipeline is no guarantee to it being built. Ask Transmountain.