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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Will Canada’s $30 Billion Megaproject Be Approved?

LNG train

Oilfield service providers suffered the heaviest blows from the 2014 oil price meltdown—there is little question about that. And the situation was particularly grave in Canada, and continues to be grave despite the recovery in prices. There are basically no major new field developments or infrastructure projects in the Canadian oil industry. There is, however, one gas megaproject that is awaiting its final investment decision in the next few weeks.

LNG Canada, a project led by Shell, will cost US$30 billion to build and will produce some 26 million tons of superchilled natural gas at peak capacity. It would also create thousands of jobs, Bloomberg reports, in infrastructure as well as in natural gas production. These are jobs that the industry desperately needs.

As of August, there were 74 gas rigs in Alberta and British Columbia, Bloomberg notes, citing data from RS Energy Group. That’s down from 180 at the beginning of 2015. If LNG Canada gets the nod of the consortium behind it, each new rig added could create up to 140 direct and indirect jobs, according to the head of a local industry player, Precision Drilling Corp. And that’s just the rigs for producing the gas. There are also liquefaction trains to build and operate, and an export terminal, and a network of pipelines.

Yet Canadian oil and gas service providers are probably biding their time: the FID on LNG Canada has not yet been made, and it has been delayed for two years already. The local services industry has already seen one LNG megaproject fall through, after last year Malaysia’s Petronas quit a US$27-billion project, the Pacific NorthWest LNG, because of the low LNG price environment. Yet this year, Petronas bought a 25-percent stake in LNG Canada, which was widely taken as a signal of renewed optimism about the future of LNG in Canada.

LNG prices have recovered partially from the lows hit in late 2015, but are far below 2014 highs. That might cast a shadow over the LNG Canada FID, but the shadow may not be all that wide because another factor has been added into the mix. The escalating trade conflict between the United States and China could benefit Canadian LNG after Beijing included U.S. LNG in the latest Chinese retaliatory tariff list of U.S. goods. Related: The Biggest Risk In Today’s Oil Markets

According to a recent story in the Financial Post, the 10-percent tariff on U.S. LNG could delay U.S. export capacity projects and boost the competitiveness of LNG Canada, helping Shell and partners make the FID.

There are still some clouds remaining on the horizon. The West Coast Environmental Law Association is trying to cancel a pipeline that will feed natural gas from northeastern B.C. to the coast, in Kitimat, where the LNG Canada liquefaction and export facility will be built. The US$3.7-billion Coastal GasLink pipeline has already been approved by the B.C. government, but the organization claims that the province has no jurisdiction over it, and it needs approval from the federal National Energy Board.

These particular clouds, however, are likely to soon disperse: everyone in B.C. seems to want this particular pipeline, unlike the Trans Mountain expansion. TransCanada earlier this week said it had secured the approval of all First Nations living along the route of the Coastal GasLink, and with the backing of the provincial government, it is ready to go. The last thing remaining is the starting pistol: the consortium’s final investment decision on LNG Canada.

By Irina Slav for Oilprice.com

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  • John Nunes on October 03 2018 said:
    Cannibis will be the faster wheels on the cart headed to hell!

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