Proposed West Coast LNG projects are getting a second look thanks to rising shipping rates making US Gulf Coast LNG costlier to Asian customers. LNG Canada image.
West Coast LNG shipping time dramatically shorter than US Gulf Coast
Proposed West Coast LNG projects waiting for approval are being seen in a more favourable light as rising shipping costs make the region’s relatively quick access to the lucrative Asian market more appealing.
Rising US natural gas prices are boosting interest as well.
In October, Shell along with its partners announced the construction of the $40 billion LNG Canada project located in northwestern British Columbia would go ahead. One of the reasons the project was green-lighted was because of its location. LNG Canada is located near the city of Kitimat, in north western BC, with access to the Pacific Ocean.
Prices for Canadian natural gas have fallen at the same time LNG shipping rates hit record highs due to a shortage of tankers. This means costs for multi-week journeys from the US Gulf coast to Asia are rising.
Currently, there are over 30 LNG export facilities in various stages of development or construction in North America. By 2030, global demand for LNG is forecast to double to 550 million tonnes per annum (mtpa) as countries like China shift from coal to cleaner burning fuels.
The China-US trade war has also entered into the equation as China continues to suspend US LNG deliveries in retaliation to Trump administration tariffs on Chinese goods. While the two countries recently agreed to a 90-day pause in the trade war, China has not yet resumed any major purchases of US LNG.
“Canada is really attractive to investors right now. And it may win funding over some of these U.S. facilities that don’t quite have everything together yet,” Charlie Cone, analyst with energy data firm Genscape told Reuters.
According to Reuters, West Coast LNG projects were expected to cost more than US Gulf Coast construction, but Shell says it will be able to ship LNG to Asia for about $7 per on million British Thermal Units (mmbtu). This is based on a $2 per mmbtu feed gas price which is lower than analysts’ expectations.
“They may be fortunate. They may have picked their time very well,” Howard Rogers, senior research fellow at the Oxford Institute for Energy Studies (OIES) told Reuters. Rogers estimated Canadian LNG break-even costs to be about $10 per mmbtu, compared to approximately $7.50 per mmbtu for new US Gulf Coast terminals.
If Shell’s estimates are correct, other proposed West Coast LNG projects could get the go-ahead. Chevron and ExxonMobil are considering building Canadian terminals and there are proposals for projects in Oregon and Alaska.
Shell Canada President Michael Crothers told Reuters that cheap feed gas made its LNG Canada project more attractive. The company says it will also benefit from a skilled labour force looking for work as construction in the Canadian oil patch slows.
“When you look at what’s happening in Western Canada, we’re actually in a bit of a lull, which is very helpful in terms of us getting access to the very best labor,” Crothers said.
Canadian feed gas sold for about $3 less than US Henry Hub spot price. During the first half of 2018, Henry Hub sold for an average of $1.69 above Canadian feed gas.
It takes between 25 to 30 days to ship LNG via tanker from the US Gulf Coast to Asia via the Panama Canal. From the West Coast, shipping times are about 10 days and with an LNG tanker shortage boosting per-day shipping costs, US Gulf Coast projects are more costly.
In the Atlantic basin, LNG shipping rates jumped to $140,000/day last month, up from about $80,000/day at this time last year. In previous years, LNG shipping rates were about $40,000/day.
LNG Canada and Woodfibre LNG in Squamish, British Columbia, are moving forward, but other Canadian LNG proposals face rigorous regulatory hurdles and investment decisions could be years away.
According to Reuters, the $40 billion Alaska LNG project, which would offer the shortest shipping distance to northeast Asia along with cheap feed gas, is looking at a early 2020 for its approval. Despite the US-China trade war, the project’s preliminary sales and financing deals with China remain.
“The global LNG market is on a significant growth trajectory. We’re going to need a number of these large projects to satisfy the demand,” Keith Meyer, president of project developer Alaska Gasline Development Corp told Reuters.