Three little letters are enough to keep Arctic pipeline developers lying awake at night.
They are LNG – as in liquid natural gas.
The expected arrival of foreign LNG by 2006-07 in North America might not send the world into a ‘twist and shout’ like the Beatles’ invasion did 40 years ago.
But it will certainly change the global business of natural gas forever.
LNG is super-cooled to condense it into a liquid for transport by seagoing tankers. The gas comes from stranded deposits, where it’s not economical to build pipelines to bring it to market, in places such as the former Soviet Union and the Middle East.
LNG imports are expected to amount to some two billion cubic feet of gas a day this year, or only three per cent of the daily gas supply in North America, according to experts at energy conferences held earlier this month in Calgary and Houston.
There are now only four operating terminals on the U.S. coasts that can re-gasify LNG so it can be fed into the existing pipeline grid. But as more terminals are built, some analysts expect North American LNG supplies to rise fivefold by 2006.
Alberta companies are jockeying to tap those future supplies. TransCanada Corp. has a partnership with ConocoPhillips for a proposed LNG re-gasification facility in Harpswell, Me., to come online in 2009. It is one of 40 new projects on the drawing board for the U.S. coast.
Petro-Canada is pursuing LNG assets in the Atlantic basin, including participating in a re-gasification facility. By 2010, LNG imports could surge up to 30 billion cubic feet a day (bcf/d) if all 40 projects proceed.
Comparatively low-cost LNG imports would mean greater supply, lower gas prices and less return on gas produced in this country by Canadian firms, which currently export about 9.6 bcf/d to the U.S.
But Ron Billings, vice-president of LNG for ExxonMobil Gas & Marketing Co., says many of those 40 LNG projects in the U.S. won’t get built because of regulatory delays and competition. He doesn’t expect LNG to make a significant contribution to supply before 2011.
Still, a flood of LNG imports would make the proposed $20-billion US Alaska Highway pipeline even more uneconomical to build than it is now, according to a study by Tristone Capital.
Even the $4-billion Mackenzie Valley pipeline might not look as attractive – especially if the project is delayed past its proposed start-up in late 2009.
U.S. natural gas distributors, from LNG tanker terminals on the Gulf Coast, would be able to reach every major demand centre in North America.
For Arctic pipeline builders, that’s got to be the most chilling aspect of LNG.
The Kyoto accord is on life support, but the oilpatch will continue reducing greenhouse gas emissions – especially if there’s a buck to be made.
The irony was inescapable after Andrei Illarionov, Russian President Vladimir Putin’s economic adviser and chief Kyoto-killer, popped up in Calgary – at the invitation of the Fraser Institute – to rail against the climate-change treaty. Illarionov got carried away by his own hyperbole, describing Kyoto as an “economic Auschwitz for Russia.”
The week after his verbal bombast, Kyoto ‘kombatants’ Alberta and Ottawa announced a $30-million agreement to create a market for – guess what? – carbon dioxide (CO2) emissions.
Federal Natural Resources Minister John Efford says Ottawa will provide $15 million in federal grants to match the $15 million in royalty incentives that Alberta Energy Minister Murray Smith announced last year for companies to kickstart a CO2 industry. The idea is to capture CO2 from industrial emissions and inject the gas underground to push more oil to the surface, while at the same time permanently storing or sequestering the greenhouse gas in the deep rock formations.
EnCana Corp. is reporting good results from a CO2 enhanced oil recovery-sequestration project at its aging oilfield near Weyburn, Sask.
Carbon dioxide management is also one of the core areas of research and development at the University of Calgary’s Institute for Sustainable Energy, Environment and Economy, a new initiative designed to capitalize on merging energy and environment interests.
CO2 could help recover some of the five billion barrels of conventional oil still locked underground – plus keep up to 75 million tonnes a year of the greenhouse gas out of the atmosphere.
Because of the way the Kyoto accord is structured, the treaty will die if Russia decides later this year not to ratify it. But the issue of greenhouse gases and climate change isn’t going away.
Illarionov may not want to acknowledge it. But the oilpatch, the Alberta government, Ottawa and the U of C all know the truth.
Super Grocery List
Imagine having to cook for 3,600 construction workers. That’s the horde – albeit a skilled horde – that will start descending on the Fort McMurray region this fall to work on a $3-billion expansion to Suncor Energy Inc.’s oilsands complex.
The Alberta Energy and Utilities Board approved the expansion of Suncor’s upgrading facilities, which will increase production capacity from the current 225,000 barrels a day (b/d) to 330,000 b/d by late 2007.
The project includes a $1.5-billion enlargement of Suncor’s upgrader plant, plus $1.5 billion in new bitumen-production facilities at the company’s nearby strip mines and its Firebag in situ underground extraction project.
The new additions come on top of a $1-billion expansion program already under way at the upgrader and the Firebag site.
Demand for workers will average about 2,800 and peak in 2006 at 3,600.
That’s quite a grocery list for the cook.
Penn West Eyes Trust Prospects
Investors are still hot for energy companies to convert to income trusts.
And that’s despite analyst reports that show oil and gas trusts have the highest variability and lowest sustainability of income distributions compared with other types of trusts, such as real-estate investment, power generation and pipeline funds.
Oil and gas trusts – also known as income funds or royalty trusts – pay out most of their income to shareholders, as opposed to reinvesting the bulk of it in oil and gas exploration.
Investors have swarmed to the trusts like wasps to a chunk of steak in recent years.
Calgary-based Penn West Petroleum Ltd. says it’s considering converting to an income trust, but hasn’t set a time frame.
Penn West, whose production growth has stalled, reported its fourth-quarter net income fell 44 per cent to $34.4 million (65 cents a share) from $61.9 million ($1.16 a share) in 2002.
The company has a market capitalization of $3 billion, which some analysts say would convert into a $3.8-billion-plus income trust.
AltaGas Services Inc. says a special committee of independent directors should make recommendations within the next few weeks on whether the company should become an income trust.
Calgary-based AltaGas, which distributes natural gas to Alberta customers through AltaGas Utilities Inc., has more than $900 million in assets and a market capitalization of more than $600 million.
The list of conversions to trusts in the oilpatch includes Baytex Energy Ltd., Bonavista Petroleum Ltd., Vermilion Resources Inc., Ketch Energy Ltd., Storm Energy Ltd., and Meota Resources Corp.
The Alberta government will adopt all the recommendations in a sweeping plan to reduce polluting emissions from existing and new coal-fired and natural gas-fired power plants.
The plan, recommended to government last November by the multi-stakeholder Clean Air Strategic Alliance (CASA), establishes significant emission-reduction targets for four power-plant pollutants.
By 2025, the plan calls for reductions in acid rain-causing sulphur dioxide by 46 per cent, smog-forming nitrogen oxides by 32 per cent, dangerous particulate matter by 51 per cent and – for the first time – toxic mercury by 50 per cent.
Government will implement the plan by January 1, 2006, CASA says . Web watch: