Rapidly growing demand pushes Americas LNG project decisions
Liquified natural gas (LNG) capital projects are gaining momentum in the Americas again because of both the recovery in oil prices, and increased demand from growing economies including India, China and Japan.
The shale gas revolution in the late 2000s marked a turning point in the American oil and gas industry. For LNG, it meant taking business in a new direction and transforming import terminals into natural gas liquefaction and LNG export facilities.
The collapses in energy prices in 2014 and concern that the U.S. would be oversupplied slowed projects for a while.
Stable oil prices and strong demand from growing economies such as China and India are changing sentiment again.
There are currently two operational LNG export terminals in the U.S. Cheniere’s Sabine Pass plant in Louisiana and the Dominion’s Cove Point in Maryland are now operating in the U.S.
More than $88 billion in LNG projects are currently planned, being built or in operation across the U.S., according to Industrial Information Resources (Industrial Info).
Canada hasn't added any new projects since shale gas burst onto the scene.
However, up to $138 billion in LNG projects have been proposed in Canada, according to data calculated from Natural Resources Canada.
“Canadian projects require developing greenfield plants and pipelines, as well as getting regulatory approvals from the indigenous First Nations communities,” said Ruth Liao, LNG Editor Americas for ICIS.
“When global crude oil prices plunged in 2015, the Canadian greenfield projects did not look as favorable compared with other projects globally, and some of the development efforts stalled or were cancelled,” Liao said.
The U.S. started to export LNG in February 2016, when Cheniere brought online its 1.4 Bcf/d Sabine Pass export facility in Louisiana.
A major change in the LNG demand outlook happened soon after as China began importing more LNG to reduce coal burn in its fight against pollution.
US LNG deliveries to China surged as low prices encouraged buyers to switch from coal, according to the U.S.-China Economic and Security Review.
China has been the third-biggest importer of U.S. LNG so far in 2018, behind South Korea and Mexico, according to January-July figures from LNG Edge.
The U.S. stands to become the world’s third-largest LNG exporter by 2020, when it’s expected to ship about 8.3 bn cubic feet a day of capacity, or 14% of the world’s share, according to London-based consultant Energy Aspects.
Meanwhile, projects such as LNG Canada envision a Pacific LNG port, potentially giving that project an advantage over its U.S. competitors for the major East Asian demand growth areas.
U.S.-China Trade War
The recent retaliatory trade announcements by the U.S. and China may have an interesting side effect on Canada and some of the other countries developing further LNG exports, such as Mozambique and expansion efforts in Papua New Guinea, Liao said.
“The latest announcement by China’s finance ministry to impose a 25% tariff on U.S. LNG, although the timing of this is yet to be determined, was seen as the latest blow to U.S> LNG expansion efforts given that China is a key growing market for new demand in global LNG.
The Chinese commerce ministry announced retaliatory tariffs on August 8 on U.S. goods, including liquefied natural gas (LNG), which will be subject to a 25% tariff, the agency said.
China said it will begin imposing 25% tariffs on $16 bn of US goods starting August 23.
The tariffs are in response to the July decision by the U.S. government to impose tariffs of 10% on $34 bn worth of Chinese goods, as well as an additional list of U.S. tariffs which was issued on August 7.
The announcement from China’s Ministry of Commerce came a day after the U.S. finalized its second list, of which $16 bn of Chinese goods will be assessed 25% tariffs starting August 23.
Additional U.S. plants could come online in the next two years including Kinder Morgan’s Elba Island LNG in Georgia, Cheniere’s second project, Corpus Christi LNG in south Texas, Freeport LNG in Texas and Cameron LNG in Louisiana.
While the U.S. has bern building several LNG export platforms, Canada has yet to add any new projects.
“More than a dozen liquefaction projects have been proposed, but the difficulty in developing in western Canada has been project cost. These export projects require thousands of kilometers of newbuild pipeline crossing through rugged, mountainous terrain, as well as other development costs,” Liao said.
Now after years of delays and false starts, some analysts predict things may be moving forward.
“Western Canada is seen as an attractive location to develop LNG exports because of its closer proximity to east Asia in shipping distance,” Liao said. “LNG exported from Canada also would not have to be subject to the Panama Canal, which has seen some bottlenecks in transits of LNG vessels due to the canal’s current reservation booking system.”
Canada’s only operational LNG terminalis Canaport LNG’s regasification import terminal located in Saint John, New Brunswick.
Twenty LNG export facilities have been proposed in Canada. 14 in British Columbia, three in Quebec and three in Nova Scotia representing a total proposed export capacity of 257 million tonnes/year of LNG.Since 2011, 24 LNG projects have been issued long-term export licenses, according to Natural Resources Canada.
“Shell’s LNG Canada is considered one of the leading contenders for project development given the company’s stated commitment to the project, its partners and Shell’s own remarks that it intends to work toward making an FID before the end of the year,” Liao said.
Shell is expected to reach a Final Investment Decision on LNG Canada by the end of the year. It would be its first new LNG project since 2011. LNG Canada would be the largest private-sector investment in British Columbia history.
LNG Canada is a joint venture of Shell Canada, a subsidiary of Royal Duth Shell (40%); Petronas, PetroChina Kitimat LNG Partnership, a subsidiary of PetroChina Canada, Diamond LNG Canada, a subsidiary of Mitsubishi Corporation and Kogas Canada LNG.
This project would see the construction of a natural gas pipeline from northeast B.C. to Kitimat, where a new terminal will process and ship LNG to Asian markets.
The LNG Canada project includes: investment in Northeast B.C. gas fields, coastal GasLink Natural Gas Pipeline to Kitimat, Terminal at Kitimat, ships for transport to Asia.
LNG Canada is expected to create up to 10,000 construction and up to 950 full time jobs in northern B.C. The LNG Canada project would be the least Greenhouse gas intensive large LNG facility in the world.
By Heather Doyle