A second venture is set to enter the burgeoning liquefied natural gas (LNG) industry in British Columbia.
On February 2, the BC LNG Export Co-operative followed in the footsteps of the KM LNG Operating General Partnership by receiving a twenty-year license from the National Energy Board (NEB) to export LNG from the west coast of Canada to Asia-Pacific markets.
However, BC LNG is employing a much different business model than the one set out for KM LNG, the first Canadian LNG project to obtain an export license, which was granted by the NEB in October. It is thought that the co-operative model will allow smaller energy companies that lack the financial resources, natural gas supplies and market contacts of major industry players such as Apache Corporation, Encana and EOG Resources - the three companies involved in KM LNG - to get their feet in the door of the LNG world.
"It's really interesting the way they set up that co-op," said Greg Stringham, Vice President of Oil Sands and Markets with the Canadian Association of Petroleum Producers (CAPP). The group was pleased to hear that another LNG project had received its export license.
"We met with them and talked about their concept versus some of the other concepts that are more backed by companies," he continued.
"And this does provide them an opportunity for people to use this more as an opportunity for them to access that market on an occasional basis rather than the long term commitments that are normally required for LNG projects. So, it's an interesting idea."
"What the co-op does is it provides open access to new infrastructure and markets," said Eric Le Dain, Senior Vice President of Strategic Planning, Reserves and Marketing with Enerplus Corporation, one of the participants in the project. "And the way it's structured, you don't have to, as a smaller player, invest the money into the infrastructure or liquefaction facilities."
Enerplus decided to get onboard as a founding member of the co-operative because of its "compelling structure."
"Within the co-operative membership, there are buyers, sellers and some intermediaries," he explained. "And so the sellers will offer in gas for a certain term and price and volume, and buyers will do similarly."
Cameron Gingrich, Senior Manager of Gas Services with energy sector consulting firm Ziff Energy Group, pointed out that most of the project participants - a list that also includes junior companies such as Birchcliff Energy and Northpoint Energy - produce considerably less natural gas than the oil and gas giants, a fact that could exclude them from the LNG marketplace and the associated revenues if not for this type of co-operative venture.
"So, certainly, it gives them the opportunity to get some of that LNG price uplift, the higher price associated with LNG across the rest of the world," he said.
"A project of that scale, which is looking for contracted or investor suppliers of natural gas, does open up the opportunities for a range of companies to see if it presents some opportunities for gas sales," echoed Gary Leach, Executive Director of the Small Explorers and Producers Association of Canada (SEPAC).
Leach also suggested that it could be necessary to export such large volumes of natural gas in order to push domestic natural gas prices back up to reasonable levels that all variety of industry players would need to be involved regardless of the model employed by any specific project.
"When they got their export permit, they hadn't necessarily secured from their own reserves 100 per cent of the gas that's likely to flow into that project," Leach said of KM LNG. "And there may be opportunities for other gas suppliers to deliver gas supplies into that system as well."
"Some people think we probably need [to export] seven or eight bcf (billion cubic feet) of gas a day to have a material impact on North American gas prices," he continued. "So, that's like seven or eight Kitimat-sized LNG export projects."
However, Leach did note that proposed LNG projects in the United States would also play a role in driving up the domestic price. According to Leach, if LNG exports do occur to that extent, the industry could see a situation in which Pacific Rim prices drop and North American prices rise until they "converge around a global happy medium."
"Clearly, you've seen a lot of interest rising in this, and you've seen it, not only in Canada, but all over North America with the abundance of shale gas that has come into production," said Stringham.
"It really does require for us to look for a diversity of markets. With the surplus of supply that's here, it's keeping prices relatively low, and we see the growth in demand that's coming from, in particular, the Asian market. And again not just China, but China, Japan, Korea, Thailand. Many of those countries over there clearly see Canada as being a very reliable, secure supplier."
Much of the discussion about LNG has been focused on China, but Gingrich feels BC LNG could be of greater interest to other markets.
"Obviously, the [proposed] Shell [Canada LNG] project seems to have a lot of the buy-side behind it with the Chinese National [Petroleum Corporation (CNPC)], KOGAS (Korea Gas Corporation) and Mitsubishi partners in that project," he said, adding that Malaysia's Petronas has also partnered with Progress Energy.
"So, this is going to be small scale project," he continued. "So, I would think that that is more attractive to maybe even smaller buyers in Japan or in the rest of Asia to consider."