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Canada’s LNG export dream is not dead yet

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LNG Industry,

Bloomberg are reporting that US President Donald Trump may be helping to revive Canada’s dream of a LNG export industry to supply growing markets in Asia.

The tariffs Trump formally ordered against US$50 billion in Chinese goods threaten to raise construction costs for LNG projects in Texas and Louisiana, providing a leg up to rival projects on Canada’s Pacific Coast. With a global gas glut tightening faster than expected, Royal Dutch Shell Plc and its partners in a proposed British Columbia complex are closing in on a final investment decision.

LNG Canada – a CAN$40 billion (US$31 billion) partnership led by Shell that includes PetroChina Co., Korea Gas Corp. and Mitsubishi Corp. – envisions an export facility in Kitimat that could eventually ship 26 million tpy of LNG.

The group’s twice-postponed investment decision is now expected by the end of this year. The province on Thursday announced tax breaks and other cost-reducing measures that could save the partners CAN$6 billion over 40 years. The catch is they have to greenlight the project by 30 November to capture those savings.

LNG Canada’s complex has the potential to ship a quarter of the gas currently produced in Western Canada. That is critical because the lack of an outlet to overseas markets means Canada’s energy exports are sold almost exclusively into the US at depressed prices.

Canadian producers are hopeful. “From what I can see, I think there’s a lot of optimism that they’ll make a positive final investment decision,” said Cenovus Chief Executive Officer Alex Pourbaix, whose company extracts gas at its Deep Basin deposit straddling British Columbia and Alberta. He commented during an interview at a Houston energy conference earlier this month.

A price-killing oversupply threw the economics of LNG exports from Australia to Russia to Mozambique into question in recent years. Malaysia’s Petroliam Nasional Bhd. and Chinese state-controlled producer CNOOC Ltd. cancelled developments worth tens of billions of dollars last year, decisions that all but suffocated Canada’s dream of becoming an LNG heavyweight.

Yet that glut may not be so big after all. With demand growing at the fastest pace since 2011, the projected oversupply is retreating. Wood Mackenzie Ltd. sees the market for new gas suppliers opening around 2022, two years earlier than earlier estimates.

Protectionist trade volleys could complicate which projects capture the opportunity.

Tellurian Inc. warned last week that steel tariffs could “significantly increase” the cost of its proposed US$15.2 billion Driftwood LNG plant in Louisiana. Freeport LNG’s project under construction in Texas is far enough along to escape the duties, but CEO Michael Smith said he worries that if the tariffs spark a trade war with China, the project could suffer because China is a potential long-term buyer of the gas.

That risk does not appear to have registered yet with the Trump administration. Commerce Secretary Wilbur Ross, speaking 22 March after his boss levied tariffs on Chinese imports, said it would be “very logical” for China to buy more US LNG.

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