This piece is the result of an early info exchange with Arthur Caldicott.  I do not pretend to be an Ngas expert. I would encourage everyone to confirm this material to their own level of satisfaction. All of the information below can be found elsewhere with only a small amount of research.

There is an element at play in the LNG/Site C discussion that is getting very little attention.

The media and spinners are suggesting that Asian gas prices are so high because demand in Asia is so high. That is not correct.

There has been a long standing difference in the way gas contracts in Asia/Europe have been priced relative to the way they have been priced in North America.

In North America Ngas prices have been independent of oil prices while historically  the other two main markets have tied them together. As long term oil indexed contracts run out and shale gas supplies continue to change the supply side of the equation, other major markets will become much more competitive.

If you have the time to spend looking at world Ngas markets, discoveries, etc.  it is hard to see the whole West Coast LNG game as anything but a God awful gamble.

BC Ngas is reported to be unusually CO2 rich, 8% to 12% while more normal levels are in the 3% range. Also, it is 9000 km from the market they want to play in.

Mixed in with all of that is China using Ngas as a transitional fuel as they develop other major energy projects.  They have about 70,000 MW of new hydro coming on-stream within a decade. In more or less that same time frame they have 27 new nuclear reactors scheduled (in addition to their existing 14). These reactors will likely each be in the 1000 MW range.

All together they have about 100,000 MW scheduled to come online within a few years of Canada becoming a Ngas supplier to that region.

The Asian market is about to become much more competitive. If and when China reaches its energy production goals in less than 15 years, there may be an even greater supply glut in Ngas. In short Asia looks like a short term opportunity.

Even the Japanese market may shrink from recent levels. Fukushima caused the shut -down of 53 nuclear reactors. Japan is normally a major user of Ngas, the nuke shut down drove that even higher. Premier Clark stated “as Japan moves away from nuclear power they will increase their use of natural gas”.  This is not going to happen as quickly as she implies.

Once passing inspections and meeting new standards most of those reactors will be coming back online. The Japanese regulatory agency has stated it will issue life extension permits, from the current 40, of up to 60 years on approved facilities.

I’ve seen the corporate/political print about Asia paying 5 times what gas is currently getting in North America. None of the writers seem to recall that right here in North America, as recently as 2005, we had gas at more than 5 times what it is worth now. It hit $15.85 (USD) while our dollar was only at $.82 US.

This could be a monumental example of good money after bad where huge volumes of cash went into developing a gas supply industry and got it up and running just in time to catch a global over-supply and near record low prices. The “investors” are searching madly to find ways of getting some cash and political returns on past decisions. It’s starting to look a bit like doubling down in Las Vegas when trying to get your money back. That may be okay if it were their own money but much of it is not.

The whole mess is looking more and more like a house of cards. The foundation card is apparently Ngas pricing. It is supposed to support a hydro dam, a series of pipelines, several LNG plants and a long-term raw feedstock production facility(s).

Take this same business structure to any lending agency anywhere and tell them you have this great idea. It will only cost $20 billion or so and it all depends upon the selling price of one product.  That product has a quality disadvantage – it is 9000 km from the market place and you have zero control over the pricing structure.  Try it, see how it goes.

If you want to zero in on this a bit take a look at information around the 30 year GazProm/China supply contract, the Iranian/Chinese developments under the Caspian Sea and the Iranian overland pipeline to China, the Chinese and Australian developments in Queensland and NW Australia (long-term $165 billion combined), look at supply from Indonesia (as I understand it’s now the world’s largest exporter of LNG) and Qatar (also a huge supplier). Even the USA says it will be an LNG exporter in a decade or less.

Just to make it interesting, several Australian lenders have warned Australian LNG project developers that they may be financially overextended.

Also worth noting is the rapidly advancing Chinese shale gas development right at home.

Norm

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