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Robert M Cutler

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Canadian Company Strikes Deal for LNG Exports to Europe

Planned exports of liquefied natural gas (LNG) from North America are already beginning to affect world energy markets, as the German company E.ON confirmed this week that it had agreed with Canada's Pieridae Energy to purchase 5 million tons annually for 20 years beginning in 2020. This is a done deal, a binding contract and not just a memorandum of understanding. The quantity is equivalent to about 6.6 billion cubic meters after per year re-gasification.

The deal represents an important diversification of supply for the Germany company, which at present relies mainly upon imports from Russia and Norway. An LNG plant is to be built on the Atlantic coast of Canada for new inexpensive shale gas. Construction of a plant with a storage capacity of nearly 700,000 cubic meters will start in less than two years, costing $5 billion.

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Location is an important consideration. Goldboro, Nova Scotia, the proposed site for the plant, is a full day's travel closer to Rotterdam than is New York City. The Goldboro plant will be built with an export capacity of 10 million tons of LNG per year, and the search for other buyers is under way. Suppliers for the E.ON contract may include companies in the eastern U.S. as well as in Canada, including eastern Canada

Backers of various proposed plants on the Pacific coast of Canada have so far not succeeded in identifying end-users. Further, existing pipelines should be able to satisfy transmission requirements to the Goldboro liquefaction plant.  E.ON has import facilities in the United Kingdom, Netherlands, and Spain, and will be constructing another offshore from Italy.

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E.ON has a long history with Gazprom with long-term contracts and fixed prices, and in the past year has tried to negotiate revised contracts with Gazprom. One of its contracts with Gazprom is due to expire in 2020. The other two run until the mid-2030s. However, the German company has denied rumors that it plans to cancel its Gazprom contracts as preposterous.

E.ON becomes the third major European company, after Centrica and GDF Suez, to contract for North American LNG. The Germany company has been obliged to sell imported Russian gas at a steep loss in order to stay competitive. E.ON has been forced take major losses to its balance sheet as as result, and it will reportedly cut 11,000 jobs, because Gazprom refuses to negotiate spot market pricing.  The contracts with Gazprom are indexed according to the price of oil, whereas the new contract with Pieridae will be based on West European natural gas market prices.

By. Robert M. Cutler


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