Ships Ahoy!: Another BC LNG Plan Receives Thumbs Up from National Energy Board
Canadian natural gas producers’ eyes may have widened a bit with the announcement that the National Energy Board (“NEB”) has approved the BC LNG Export Co-operative’s application for a liquefied gas export licenceoff Kitimat, BC. With the approval, one more hurdle has been removed for the co-operative, formed by a partnership between family-owned LNG Partners of Houston, Texas and British Columbia’s Haisla First Nation.
This marks the second approval of an export facility by the NEB, following last October’s approval of the Kitimat LNG Project, proposed by a partnership between Apache Canada (NYSE:APA), EOG Resources (NYSE:EOG) and Encana Corp. (TSX:ECA) (NYSE:ECA). Each project will aid producers with an opportunity to export their super-cooled, pressurized natural gas over 20 years to Pacific Rim export markets.
With languishing domestic natural gas prices, the profit margin for processing and shipping these liquidized hydrocarbons remains quite enticing. Abroad, the commodity is fetching prices in the vicinity of US$14-$16/mmbtu, compared to the heavily discounted $2.48/mmbtu price seen in North America. Even when subtracting out the US$8/mmbtu it costs to ship the fuel from Canada, that still leaves a premium of $3.52-$5.52 in revenue over top of selling it dry.
The newly approved $450-million facility would ship 36 million tonnes of LNG over 20 years from a floating terminal off Kitimat. This would be the equivalent of 125 million cubic feet per day (“mmcf/d”). In comparison, the October-approved Kitimat LNG Project from Apache, EOG and Encana is set to process five and a half times the co-operative’s facility, with 700 mmcf/d at ten times the cost, with a price tag of $4.5 billion.
Combining the two facilities would make for 6.8 million metric tonnes of LNG to be exported from the region per year. The incentive to open up a profitable release valve on the natural gas sector had to have been enticing to the government, as producers are languishing with prices that are under water. Yet, the quantity coming out of Canada will still be quite small in comparison, and likely won’t make a large dent on the domestic prices paid by North Americans.
Within its approval statement, the board said the following: “In approving BC LNG’s application, the board satisfied itself that the quantity of gas to be exported is in excess of the requirements to meet the foreseeable Canadian demand.”
But while Canadian demand isn’t damaged with the capability to export, the need to diversify Canada’s energy markets is slowly being acknowledged. While a major political battle is taking place over the Northern Gateway Pipeline in BC courtrooms, these LNG projects are going forward without the same sort of fanfare. Perhaps it’s because of the stigma attached to crude oil vs the cleaner burning natural gas. Or else, it’s because of the parties involved. It undoubtedly helps that the co-operative project is endorsed and partly owned by the Haisla First Nation, but also the fact that the route planned for pipelines are less intrusive.
Going forward, it’s nice to see these projects moving past the approval stages and onto the task at hand: exporting Canadian natural gas to a world that needs it. With what looks to be little resistance, these two LNG facilities represent the beginning of a new era, whic
G. Joel Chury is a veteran investment columnist for Resource World Magazine and the Editor in Chief of VantageWire.com. His knowledge of both the mining and oil and gas sectors along with his ability to sift through TSX.V data and press releases makes him one of the best up-and-coming newsletter writers on the web.
With a diverse background that includes investor relations writing and consulting for publicly-held companies and previous field work as a surface land agent for oil and gas companies, Mr. Chury seamlessly translates technical results geared towards engineers and geologists into a more readable language that’s palatable for investors on the go. As well, Mr. Chury is an avowed silver bug, always willing to join the debate on where the precious metals market is heading.
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June 4th, 2020
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