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A piece on the growing Canada LNG space -Part 1 – 18th May 2014

By Musabbir Mazhar

What got my attention to the global Liquefied Natural Gas (LNG) market and to look at Canada’s export potential? Well, a number of things: – There’s a huge energy resource base located in Western Canada and Canada’s technological development in the energy space to be able to make use of unconventional energy

-Majority of the consumers of LNG being the developing but energy-craving South-East Asian Countries  – which are expected to grow at a astounding rate still compared to rest of world; and some more developed European Countries

– Canada’s west coast being nearby to South-East Asia’s growing LNG demand

-Desire for Canadian Companies to tap broader markets with higher profit margins given the relatively low natural gas prices in North America

-The fact that Asian consumer are mostly dependant on Australian supply for LNG means they have room to diversify their supplier base- where Canada comes in!

World trade in LNG has grown more than 3 times in the last 15 years to about 32 Bcf/d (Billion Cubic feet per day). Canadian companies have just started to exploit their exporting potential of the large unconventional resources in the LNG energy space.

Western Canadian Sedimentary Basin

Western Canadian Sedimentary Basin

Before delving into a few numbers, let me just briefly lay down basic terms:

What’s LNG? LNG, as its name suggests – is natural gas which has been converted to liquid form by cooling to apprx -162 degrees celcius – it is 1/600th of the volume of natural gas, in gas state. Simply put, the liquefied form is transported and then re-gasified after transportation. Oh, What’s natural gas ? It is composed of Methane (CH4), Ethane (C2H6), propane (..), butane, pentanes and other much heavy Hydrocarbons. It’s formed over millions of years from Carbon & Hydrogen molecules locked within geological formations.

Currently Western Canada’s capacity for marketable natural gas amounts to 821 Tcf (Trillion cubic feet) according to National Energy Board (NEB) estimates of which 632 Tcf is remaining by 2012 end. Of these, 531 Tcf are unconventional which are mostly found in Montney and Horn River. Montney formations and Horn River are located in North-eastern British Columbia.
Conventional? Unconventional? Simply put conventional gas is easy to produce and are usually in small volumes in form of carbonates, sandstones, siltstones; compared to more difficult unconventional gas sources which are in larger volumes in form of shale gas, tight gas, hydrates, coal bed methane.

Some deals reflecting SE Asian investments follows:

Timeline Joint Ventures/Companies Deals
Mar-10 Encana & Korea Gas joint Venture Bought a 50% stake in Montney Formation and Horn River Shales in BC
Aug-10 Penn West Energy Trust & Mitsubishi Corp Agreement to develop gas properties in North-eastern (NE) BC
2010-2011 Petronas Invests $1.07B in shale gas in NE BC
Jun-11 Progess Energy Resources Corp Agreement with Petronas (malaysian national oil company) to develop Montney shale assets in BC where Progress was already working
Feb-12 Encana & Mitsubishi Corporation Agreement Mitsubishi investing C$2.9B for 40% stake in Cutbank Ridge Partnership (Montney formations)
Feb-12 Petrochina Co & Royal Dutch Shell PLC Agreement by Petrochina to buy a 20% stake in Royal Dutch shale assets in Canada – deal more than $1B
Dec-12 Encana & Phoenix Duvernay Gas (subsidiary of Petrochina) Agreement to develop Encana’s undeveloped Duvernay land in western central Alberta. Phoenix gained a 49.9% interest in Encana Duvernay formations for C$2.18B

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