The Canadian natural gas sector fares among the top five major gas producing nations on cost of supply, according to a new analysis by the Canadian Energy Centre (CEC), even as it struggles to keep up with the US for the emerging liquified natural gas (LNG) export market..In its latest fact sheet, CEC says breakevens for Canadian gas production came in at $2.31 US per thousand cubic feet (mcf), the fifth lowest among the top 10 major natural gas producing countries, behind behind Saudi Arabia ($1.09/mcf), Iran ($1.39/mcf), Qatar ($1.93/mcf) and the United States ($2.22/mcf), but ahead of Russia, Norway, Algeria, Qatar, China, and Australia..Canada’s average rate of return at 38.29% was the second highest among major natural gas producing countries, behind only Saudi Arabia (39.73%), it added..Several Canadian gas plays are among the most cost competitive in North America and indeed, the world. Several smaller regional plays such as the Manville, which has been producing since the 1950s, and the Cardium are well below $1.30 while the bigger Montney and Duvernay shales come in at $1.49 and $1.79, respectively. The latter pair are shaping up to be the major sources of supply for Canada’s nascent LNG industry..“With the inherent advantages of access to low cost feed gas, shorter shipping distances, and a low emissions intensity footprint, Canadian natural gas is well positioned to act as a secure and reliable supplier of LNG to a world where demand for LNG is growing at rapid pace,” CEC concluded..Cost of supply and shorter shipping distances to Asia are seen as competitive drivers for the $40-billion LNG Canada project in Kitimat — which is about 70% complete — even as the US Gulf Coast is emerging as North America’s major LNG hub due to its proximity to liquid trading markets. Unlike Canada, where the Kitimat project is backstopped by long term fixed supply contracts with major Asian buyers such as Mitsubishi, PetroChina and KoGas — which are all partners in the Kitimat project — Gulf Coast buyers and sellers have access to US spot and futures prices..Henry Hub spot — which is traded in Louisiana — was going for $2.42/mcf on Thursday which puts most Canadian gas as a marginal value proposition after factoring in transportation costs. Once loaded on an ocean going LNG vessel, however, it can fetch $10/mcf or more in Europe or Asia. .That’s why Canadian gas producers are increasingly signing supply deals with US LNG exporters to move their product off US shores. In January Calgary-based Tormaline Oil — which despite its name is actually Canada’s largest gas producer — began shipping approximately 140 million cubic feet per day to Houston-based Cheniere Energy Inc.’s Corpus Christi liquefaction terminal under a 15-year term that saw it net about $14.30/mcf in Japan and Korea despite the fact it had to traverse the Panama Canal..Tourmaline isn’t alone. Other Canadian producers are increasingly looking to the Gulf Coast amid regulatory delays and uncertainty on this side of the border. On a conference call last month to discuss fourth quarter results, Enbridge CEO Greg Ebel said his company is looking to acquire and build out new gas pipelines on the Gulf Coast, where it supplies five LNG export terminals, due to interest from Canadian producers..In an interview with Canadian Press he bemoaned what he termed “a lost decade” for Canadian LNG due to permitting delays and policy uncertainty on this side of the border. .“My first choice would be doing it right here in our backyard, but if that’s not possible, then we have to allocate it in different parts … and hence that’s why you see this great production, in both infrastructure and opportunity, on the Gulf Coast.”
