Breaking the global impasse on final investment decisions for large-scale LNG export projects, Shell last week announced the sanctioning of a 13 million mt/year export project in Western Canada. How competitive is it with US Gulf contenders and will it usher in the next series of green lights? Madeline Jowdy, senior director, global gas and LNG for S&P Global Platts, examines the market.
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Breaking the global impasse on final investment decisions for large-scale LNG export projects, Shell last week announced the sanctioning of a 13 million ton per year export project in Western Canada. Currently on the sidelines, some twenty similar sized US Gulf LNG export proposals are also vying for the investment dollars required to sanction the next generation of LNG supply projects.
The FID on the LNG Canada facility has been over a decade in the making, and the timing in light of the Sept. 24 China tariffs on US LNG cannot be ignored. China is now the second largest importer of LNG in the world to Japan, and its LNG import requirements are already surpassing the volumes it has under contract.
The attractiveness of a west coast Canada LNG export facility to lucrative Asian markets has never been contested. British Columbia sits closer to key north Asian buyers than any other non-Asian supplier. In LNG shipping, time is money due to boil off costs. The significantly reduced transit time overseas, with some estimates putting a Canada-to-Japan voyage at eight days, just more than a third the roughly 22 days it takes to complete the voyage from a Gulf Coast terminal amounts to around $3.6 million dollars per cargo with today's shipping costs.
Another big selling point for Canada is that there are no transit choke points to market such as the Panama Canal. Other shipping flashpoints such the straits of Hormuz or even within Asia, the straits of Malacca are also avoided.
The key question for the long term viability for LNG Canada will be its cost competitiveness given its remote location far away from the resource base. In this regard, US Gulf projects come out ahead owing to an established pipeline network from a variety of producing basins, a well-established infrastructure network and a large readily available workforce. The biggest hurdle for North American west coast projects has been getting stranded feed gas to the export point at a less than prohibitive cost. When the market becomes more liquid and global prices converge, the question of the lowest cost producer will be a critical factor in producing that incremental cargo.
80- The question on every project backer's mind from Kitimat to Calcasieu Pass to Qatar is whether or not this FID will usher in the next series of greenlights. Global demand is set to grow beyond the world's ability to supply it by around 2022. Even with new supplies from Canada, Platts Analytics estimates the world will still be coming short if no further projects are sanctioned to begin starting up at that time.
Until next time on the snapshot – we'll be keeping an eye on the markets.