No relief for natural gas producers as Apache’s Kitimat plant delayed
Beleaguered natural gas producers in Western Canada are going to have wait a little longer for relief from severely depressed prices. Janine McArdle, the senior executive in charge of the Kitimat LNG project at Houston-based Apache Corp., said the facility’s planned startup will take an extra year as the company continues to look for firm contracts with buyers in Asia.
Apache’s proposed natural gas liquefaction plant on the northern British Columbia coast, which it owns with Encana Corp. and EOG Resource Inc., would be the first in line to ship large quantities of LNG to Asia.
The first cargo is now expected to leave Canada in 2017, a year behind the latest plans. The project has regulatory approval, but Apache needs to be sure it has a market for the gas and that the project is economic before taking a final investment decision, Ms. McArdle, senior vice-president for gas monetization at Apache, North America’s largest oil and gas independent producer, said Wednesday.
Construction of a 10-million tonnes a year plant would then take 50 to 60 months.
“We are moving as quickly as we possibly can given that Canada is new to these buyers, and we are relatively new to the buyers as Apache,” she said on the sidelines of an industry conference.
“We have been talking to multiple markets simultaneously and there is a lot of interest. I always have to remind people that these are 20, 30-year marriages. These things don’t happen overnight.”
Next in line is Royal Dutch Shell PLC’s B.C. LNG project, which is slated for startup in 2019. Shell gave the tentative go-ahead to the project last month with three Asian partners that will secure Canadian gas has customers — PetroChina, Mitsubishi Corp. and Korea Gas Corp. However, the project has yet to obtain regulatory approval.
- Apache discovers massive shale gas field in B.C.
- Alberta looking at ways to expand natural gas use, including in vehicles
A handful of other projects are also in various planning stages, but they are further behind.
It’s a tense time for Western Canadian natural gas producers, who are watching closely progress on LNG facilities on the B.C. coast so they can start monetizing reserves already found and look for new ones. The facilities will enable exports to Asia and help alleviate a massive shale supply glut in North America that has depressed prices to 10-year lows.
Asian demand for LNG is expected to increase to 35 billion cubic feet a day by 2020, from 20 bcf today, said Ed Kallio, director of gas consulting at Ziff Energy Group, a Calgary-based gas forecasting firm. He expects demand to outstrip supply in Asia by 2016/2017.
The good news is that there is plenty of gas to keep the projects full. Apache announced last week that it discovered in the Liard Basin a new shale gas field containing as much as 48 trillion cubic feet of recoverable natural gas which it characterized as one of the world’s best.
The find motivates Apache to develop an alternative market for Canada, Ms. McArdle said.
It also further boosts Canada’s 500-trillion cubic feet of natural gas reserves, a number that has ballooned in recent years thanks to shale discoveries such as the Horn River, the Montney and the Cordova, all in British Columbia. To put it in context, the now-shelved Mackenzie Gas Project was underpinned by six trillion cubic feet of reserves in the Mackenzie Delta. The number seemed immense before shale gas was unlocked.
Mr. Kallio, who also spoke at the conference, said it will take a lot more than LNG exports to restore balance to the natural gas market and Western Canadian producers will be stuck in a low-price environment for several years. Demand will have to increase, and supply will come down as production of liquids-rich natural gas runs out of steam with weakening of liquids prices, as drilling promoted by land terms tapers off, and if producers do their part by being more disciplined, he said.
“We had such a rush and we had a bunch of cowboys out there, including Chesapeake [Energy Corp.] and Encana that drilled like crazy, [because] they had nice hedges on through the end of this year. But they have very little hedged next year, and that is why they are selling assets — they are selling fingers, toes, kidneys, prized assets to get the cash flows up” and hang in until the next rising market, Mr. Kallio said.
- Shell races Apache to export LNG from Kitimat to Asia (bizjournals.com)
- Apache discovers massive shale gas field in B.C. (business.financialpost.com)
- Natural gas producers pin hopes on Asian market as prices sink (business.financialpost.com)
Posted on June 21, 2012, in AMERICAS, Canada, Energy, LNG, North America and tagged Apache, Apache Corporation, Asia, Canada, EnCana, Encana Corp., EOG Resource Inc., Kitimat LNG project, Liquefied natural gas, LNG, PetroChina, Royal Dutch Shell. Bookmark the permalink. Comments Off on No relief for natural gas producers as Apache’s Kitimat plant delayed.