North American LNG projects need long-term view amid weak oil: ExxonMobil
Sustained low oil prices are forcing LNG developers and buyers to take a long-term view if they want proposed export projects to be built, particularly in Canada’s British Columbia, a senior ExxonMobil official said Wednesday.
Customers see North America as the next key supply source due to the stable and secure investment climate, Steve Lidisky, president of the company’s LNG market development, said in Vancouver at the 3rd International LNG in BC Conference.
The optimism comes despite some 140 million mt/year of new projects under construction globally with nearly one-third of that capacity not committed to suppliers, he said.
“LNG is a long-term business and necessity provides the need for innovation,” he said. “The low oil prices are an opportunity for a cost shake-up and developers will need a long-term disciplined view.”
ExxonMobil, under a 50:50 joint venture with Canada’s Imperial Oil, plans to build a greenfield LNG facility in Prince Rupert, British Columbia, with 15 million mt/year initial capacity and expandable to double the size at a later date, he said.
Called the WCC LNG facility, it has already received an export permit from the federal National Energy Board and in late 2014 filed a project description report to the British Columbia government.
“We will leverage on the gas resources in northeast British Columbia and are working on the feedstock gas pipeline route, cost synergies and consultations with stakeholders,” Lidisky said.
The ExxonMobil/Imperial JV has not set a timeline for starting the planned facility, with its focus now being on working various project elements that include regulatory approvals, estimate cost and firming up offtake deals with buyers.
Andy Calitz, CEO of LNG Canada, said at the same event that British Columbia holds two key advantages to projects on the US Gulf Coast: shorter sailing time to consumers in Northeast Asia and gas prices at Canada’s AECO now trading at a 50 cents/MMBtu discount to the US’ Henry Hub. But the province will have to work to be competitive in other ways.
LNG Canada — a joint venture between Shell Canada Energy (50%), PetroChina (20%) and Korea Gas Corp. (15%) and Mitsubishi Corp. (15%) — plans to build a 24 million mt/year at Kitimat, British Columbia.
It has its NEB export license and environmental approvals and completed the necessary deals with First Nations bands, Calitz said.
“We have to focus incredibly hard over the next few years to get the cost of supplies, including labor down,” Calitz said.
The current full-cycle cost in Western Canada for an LNG project is Henry Hub $10/MMBtu, including upstream development, pipeline tolls, liquefaction and shipping, Bill Gwozd, a senior vice president for gas services with Solomon Associates, said separately from Calgary.
“That’s a macro average and developers will work to beat this by driving down costs through pipeline optimization and lesser shipping cost,” Gwozd said. “Their target will be to stand at Henry Hub $8/MMBtu.”
Racim Gribaa, LNG leader and managing director for corporate finance advisory at Deloitte, said on the sideline of the event that developers in Western Canada have one of the cheapest sources of gas globally, with prices around C$2.63 ($2.38)/MMBtu.
He said there is now a need to need to link customers in Asia on a full value chain basis by building the pipelines to bring gas to the Canadian Pacific Coast and constructing the liquefaction trains, Gribaa said.
“The oil price today is irrelevant, as no gas molecules will be traded until six years from now when large-scale LNG exports will start from BC,” Gribaa said.
The sailing time to Japan from British Columbia will be about 10 days and there will also be savings of over $700,000/round trip for not going through the Panama Canal, he said.