The energy industry in Canada has long lamented the fact that the country is missing out on the global surge in LNG demand, first as a replacement for coal, and now, for Europe, as a replacement for Russian pipeline gas.
That Canada, which has 1,373 trillion cubic feet of gas, is late to the LNG party has been mostly the result of federal government policies and environmentalist opposition. Yet despite the multiple challenges, the country’s first LNG terminal is expected to start operating in about two years. Until then, however, one producer has found another way to get its gas to international markets.
Tourmaline Oil Corp., the largest natural gas producer in Canada, is sending its natural gas from northeastern British Columbia to the Gulf Coast in Texas by way of Chicago, where Cheniere Energy liquefies it and ships it overseas. It’s a 3,000-mile journey to the Gulf Coast alone—and there are more miles to travel.
According to Bloomberg, this is “a record-setting path.” Tourmaline has a 15-year contract with Cheniere Energy for 140 million cu ft of gas daily, which is equal to about one LNG cargo a month, per Bloomberg. And it’s getting paid ten times what gas sells for on the local market.
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At the AECO hub in Alberta, natural gas trades at around $2 per gigajoule, which is about 1,000 cu ft. Under the deal with Cheniere, Tourmaline is getting $20 per 1,000 cu ft, according to the Bloomberg report. That’s gross, and there are expenses related to the pipeline transportation of the gas across the U.S. and the liquefaction and shipping. However, the bottom line appears to be still substantially above the AECO benchmark.
Yet what Tourmaline is sending to Cheniere’s terminal in Louisiana is a small part of what it exports to the U.S. in total on a daily basis. That amounts to 754 million cu ft daily but could grow to above 850 million cu ft this year, according to a recent quarterly conference call. This could rise further to 926 million cu ft by the end of 2024.
Recently, there have been warnings that U.S. gas producers are retreating in the production growth department after European—and U.S. gas prices—slumped amid the predominantly warm winter that lowered demand for the commodity.
These warnings, combined with signals to the same tune from the industry itself, have suggested the possibility of a gas shortage. While not an immediate danger, it is not unthinkable even as demand remains robust. Yet if Canadian producers can step in and close the supply gap, the risk of a shortage may get well delayed or entirely eliminated.
Natural gas in the United States is trading at much lower prices than last year, but natural gas in Canada is trading at even lower prices. And there appears to be a healthy appetite for Canadian gas south of the border if the Tourmaline deal with Cheniere is any indication. It might not be the only but the first one to close such as deal with an LNG exporter, at least until LNG Canada, which is about 70 percent built, is completed.
Some in the industry would probably laugh and shake their heads sadly at the fact that Canadian gas has to go all the way to the bottom end of the continent to get exported to international markets instead of this happening at home.
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Yet the Tourmaline-Cheniere deal proves one important fact about the energy market. This fact is that even with all the opposition that a government could mount against an industry, it’s still supply and demand that have the last word. Right now, this word, or rather words, are “More Canadian gas, please.”
By Irina Slav for Oilprice.com
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