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A huge transition is taking place in Canada’s natural gas industry. As natural gas exports to the United States drop as a result of a drilling boom south of the border, big plans are being made to ship Canada’s natural gas to growing markets in the Asia-Pacific, where it can be sold at a premium.
But getting the gas overseas is no small feat. The commodity needs to be condensed into what’s known as liquefied natural gas (LNG), stored in tanks and shipped to waiting customers in places such as Japan, South Korea, Taiwan and China. There are no LNG terminals in Canada today – a gap some of the world’s largest energy companies are vying to fill.
About a dozen multibillion-dollar proposals are on the table to build export terminals on the coast of British Columbia, many linked through proposed pipeline routes from natural gas fields across northern British Columbia and Alberta.
“What we are talking about here is a complete reorientation of Canada’s natural gas supply chains,” said Peter Tertzakian, chief energy economist and managing director with Arc Financial Corp., a private equity firm. Of the proposals being considered, Mr. Tertzakian says the market likely can support only three, maybe four. For the energy industry, it’s game on.
While these projects are out in front, their owners will be watching their backs after Exxon Mobil Corp., the world’s largest energy company, recently announced its plans with Imperial Oil Ltd. to build a giant project of its own for up to 30 million tonnes a year.
At this stage, it’s anyone’s guess which project will be first – or how the players might change – between now and the first shipment off Canada’s West Coast, expected in 2015. Keith Schaefer, editor and publisher of the Oil & Gas Investments Bulletin, said the market is waiting to see the first contract price for gas supply from these project proposals. That will help companies determine whether to move ahead with their projects. “As soon as the first Canadian LNG proposal announces a contract price, we’ll see who is really in this game and who isn’t,” he said.
The technology
The most efficient way to get the commodity overseas is to compress it into LNG, then ship it. The process begins by piping gas extracted from the ground to an LNG facility. There, the gas is purified, then cooled to -162 Celsius, turning it into a liquid and reducing its volume by 600 times, which is considered the main advantage of the technology. It’s then stored in huge tanks and shipped to its destination. Once it arrives, the liquid is warmed in a re-gasification plant until it’s returned to its original state. From there, it’s piped to end users, which include homes, businesses and industries.
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