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Steelhead LNG halts project in Canada; CEO points to pipeline difficulty

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Steelhead LNG halts project in Canada; CEO points to pipeline difficulty

Canada's Steelhead LNG Corp. halted its plans for an LNG export project in British Columbia, the latest venture in Western Canada to be scuttled in the face of difficulties building natural gas infrastructure such as pipelines.

Steelhead LNG CEO Nigel Kuzemko said the decision to call "timeout" on the Kwispaa LNG project stemmed from difficulty accessing capital because of uncertainty in the financial markets over risks related to building a pipeline. The pipeline would feed natural gas to the terminal capable of producing 12 million tonnes per annum of LNG in its first phase.

"The current political, regulatory and geopolitical environment has created a mood of caution amongst key industry participants in financial markets," Kuzemko said in a Feb. 19 interview. "This resulted in them requiring a higher level of certainty in de-risking than previously envisaged. It is clear to us that the macro-business environment needs to improve in order for the pipeline to be further de-risked, which will then allow us to build confidence in the investment community."

The developer had targeted making a final investment decision on Kwispaa LNG in 2020 but has now delayed that indefinitely. Instead, the company will turn its attention toward developing plans for a natural gas pipeline from northeastern British Columbia to Vancouver Island, Kuzemko said.

Steelhead LNG executives had estimated the cost of the terminal and the connected pipeline at C$18 billion. Unlike a slew of land-based projects along the U.S. Gulf Coast, the Kwispaa LNG project was proposed as a floating facility in a natural deepwater harbor southwest of Port Alberni on Vancouver Island.

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Steelhead LNG was developing the project through a co-management relationship with the Huu-ay-aht First Nations citizens, who approved the project on their territory in a 2017 referendum. Huu-ay-aht First Nations leaders said in a Feb. 15 open letter to their community that they were "saddened by the decision of Steelhead LNG."

"We are deeply disappointed, and over the coming weeks your government will evaluate the implications of this decision by Steelhead LNG, identify all go-forward options, and assess how best to advance the interests of our citizens," Elected Chief Councillor Robert Dennis and Head Hereditary Chief Derek Peters wrote.

More than a dozen other LNG projects have been proposed for Western Canada, seeking to benefit from cheap Canadian gas and proximity to key markets in Asia compared to rival LNG export ventures on the U.S. Gulf of Mexico and East Coast.

Several of these efforts have been shelved as Canadian LNG export hopefuls struggled with the costs of expensive pipeline and terminal infrastructure, opposition from environmental and aboriginal groups, and a global LNG market that at the moment generally favors buyers. But a final investment decision for the LNG Canada project in October 2018 made some market observers wonder if that project, commercially sanctioned by a group of investors led by Royal Dutch Shell PLC, would open the gate for other LNG facilities in Western Canada. Kuzemko said he remains upbeat about that prospect.

"The LNG side everybody is very comfortable with," Kuzemko said. "The gas supply side, in terms of competitively priced natural gas globally, is clearly there, and there are significant reserves. The issue it comes back to is the pipeline and how do we get the pipeline across British Columbia."

"So that's the focus that we want to give to the next phase, and that's what we will be doing," Kuzemko said.

A study from consulting firm Wood Mackenzie also found that floating LNG facilities, which place gas liquefaction and export infrastructure on ships or other mobile marine platforms instead of in a fixed terminal on land, will likely remain a small share of the global LNG market. The January report said the "increasing number of high-capacity and lower-cost projects" in North America gaining regulatory approval are competition for floating LNG ventures.

Steelhead LNG had proposed another smaller export venture, Malahat LNG, but canceled the project late in 2017, becoming the fourth Canadian LNG developer to pull the plug on a project that year. The project was being developed with the Malahat Nation on the group's Bamberton industrial lands.

Kuzemko said he hopes that Steelhead LNG can return to developing the Kwispaa LNG terminal if the pipeline efforts, which would require governmental permitting and First Nations support, prove successful.

"It wouldn't need resurrecting. It's still there," Kuzemko said. "It's still … a viable project. It's something that everyone would have to be comfortable with, of course, and if everybody wants it to, it could easily be progressed."


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Coal Forecast Surging Export Volumes Aid Coal Production As Gas Competition Tightens

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Higher export volumes aid coal production as gas competition tightens domestically

Jul. 20 2017 — Coal production made gains through June as modest electricity demand to open the summer was offset by stronger exports. Weekly shipments for June came in 24% higher than the same period last year, continuing the improved production results for 2017. However, easing natural gas prices during June provided little headroom for thermal coal prices. The NYMEX CAPP eased by $0.25/ton (0.5%) for the month, while the NYMEX PRB gained $0.24/ton (2.2%).

Natural gas prices traded lower during June than in May, with low electricity demand doing little to clear surplus storage. After opening the month at $3.05/mmBtu, Henry Hub spot prices varied during mid-month from $2.85-3.12/mmBtu, before closing at $3.07/mmBtu. Natural gas remains in a moderate surplus, with June injections trailing modestly below historical averages. Storage levels as of June 23 stood at 2,816 Bcf, 182 Bcf above five-year averages. The surplus restrained natural gas markets during the month, with warmer weather the last week of June kicking off the cooling season and providing a boost to prices.

Coal inventories remain in surplus as well, with April stockpiles growing to just over 166 million tons, 9.3% above normal. The growth in inventory corresponds to estimated displacement of coal from natural gas generation resulting from Henry Hub prices declining by 20 cents per mmBtu. Looking ahead to the summer season, robust cooling demand could add 1.5 million tons per week to production, which would drive coal production to levels not seen since the summer of 2015. For the four weeks ending June 24, coal shipments averaged 15.5 million tons, as demand into the summer season picks up. Production levels continue to improve overall, about 24% higher than the same period last year. Inventories remain above normal, and low electricity demand shoulder season may do little to clear them, tending to keep a lid on prices.

Higher natural gas prices have boosted coal demand for the first half of 2017, especially compared to the dramatic loss of demand that occurred during the first half of 2016. However, surpluses linger in both the coal and natural gas markets going in to summer. If electricity demand remains low, growth in coal production could taper during the peak season.

On the improved demand picture for the year, the CAPP and NAPP coal regions are projected to beat 2016 production levels. A firmer natural gas strip, easing coal retirements during the year, and stronger seaborne metallurgical markets all contribute to the improved outlook. The markets for Illinois Basin and Southern PRB are also projected to rebound by 44 million tons this year on improved price competitiveness.

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