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Canada has an LNG card in its China file

China’s demand for energy will continue to grow. Canada’s natural gas is a safe, reliable, and relatively clean source – and will only become more valuable. Part one in a series.
LNG tanks at Shanghai Yangshan Port, China

British Columbia’s emerging liquefied natural gas (LNG) industry may have just shone a small light into the long dark tunnel enveloping bilateral relations between Canada and China.

Amid the continuing outpouring of bad news and bad blood between the two countries, BC-based utility firm FortisBC announced that it had secured Canada’s first long-term deal to supply LNG to China. It is also Canada’s first to Asia.

Starting mid-2021, FortisBC said it will supply China’s Top Speed Energy Corp a total of 106,000 tonnes of LNG from its Tilbury, Delta plant over a two-year term.

“This is the first agreement of its kind that will see Canadian LNG shipped regularly to China,” said Douglas Stout, FortisBC vice-president of market development and external relations.

While the total volume is small, worth around US$30 million at current spot prices, the deal is hugely significant on a number of fronts.

First, it is a watershed event following decades of industry disappointment and unfulfilled expectations that LNG from western Canada’s vast resource base might one day be regularly shipped to Asia. Japanese firms had first explored the possibility of developing and exporting LNG from northern BC to Asia in the 1960s.

"China is hungry for clean-burning fuel."

With China hungry for clean-burning fuel as it looks to natural gas to replace coal for power generation, Stout said he expects to secure a few more term and spot contracts.

“We are working with a number of customers interested in shipping Canadian LNG to Asia as demand is expected to continue to grow. There is capacity at our facility for additional export shipments,” he said in a follow-up email.

The company announced its term deal on July 16 shortly after completing a C$400-million expansion that lifted the annual production capacity of its Tilsbury plant from 35,000 tonnes to 250,000 tonnes. (US$1=C$1.31).

The deal builds on the success of ad hoc spot cargo shipments that started in November 2017, when FortisBC made a first trial sale of about 19 tonnes to China through Vancouver’s True North Energy Corporation and China’s CIMC Enric Holdings Ltd.

Second, FortisBC’s breakthrough deal augurs well for bigger players that are in the midst of launching BC’s new multibillion dollar LNG export industry.

Singapore’s Pacific Oil & Gas Limited is expected to soon approve subsidiary Woodfibre LNG Private Limited’s plan to construct a 2.1-million tonnes/year export terminal near Squamish.

The case for a final investment decision (FID), delayed for years by poor market conditions and local environmental opposition, was strengthened by June’s announcement that Woodfibre had secured a binding LNG sales and purchase agreement with BP Gas Marketing Limited (BP), a wholly-owned subsidiary of the UK major. BP has committed itself as Woodfibre’s foundational customer by agreeing to the annual purchase of 750,000 tonnes of LNG for 15 years, starting 2023.

The big daddy is LNG Canada, the Royal Dutch Shell-led C$40-billion project in northern BC that won FID approval last October. Shell has a 40% stake in the LNG Canada consortium that has already started construction of the 14 million-tonne/year processing plant and export terminal in Kitimat. With four Asian companies --- Malaysia’s Petronas (25%), PetroChina (15%), Japan’s Mitsubishi Corp (15%), and Korea Gas Corp (5%) --- as the other shareholders, the plant will export the bulk of its output to markets across the Pacific Ocean.Consulting firm Wood Mackenzie said it expects a “significant portion” of LNG Canada’s output to flow to China when production starts up in 2024.

"The big daddy is LNG Canada."

“We also expect Woodfibre to reach FID this year,” said Dulles Wang, Wood Mackenzie’s gas research director for North America. If so, the C$1.6-billion plant could start operating from late 2023.

By 2024, BC would have a combined annual LNG capacity of over 16.5 million tonnes from its three operators.

Third, these three projects prove Canada’s LNG exports to Asia can compete against those from the new energy superpower emerging in the United States. According to the Energy Information Administration, US LNG exports, mostly to Asia and Europe, are expected to surge by 63% to 43.8 million tonnes in 2019 and to over 63 million tonnes in 2020 as new processing plants start up.

Wang said western Canada’s Montney geological formation “has some of the cheapest gas supply in North America” where a number of Asian companies have already invested in reserves and producing fields.

“The economics of Canadian LNG projects look comparable to some of the US greenfield projects mainly due to the resource cost advantage and shorter shipping distance to Asia,” said Wang. Canada has the added advantage of its cold climate to boost the efficiency of the liquefaction process, thus reducing operating costs.

Fourth, LNG has found rare broad support across ideological lines in Canada’s two largest parties, the Liberals and Conservatives, as well as BC’s provincial New Democrats, Indigenous and local groups. This is not to be underestimated; many natural resource projects in Canada have been sunk or delayed by opposition from environmental, Indigenous and political groups.

The success of the three BC projects will likely attract more investments, including an expected doubling of the LNG Canada plant capacity to 28 million tonnes and a likely FID approval by US major Chevron and Australia’s Woodside Petroleum for a jointly-owned 18 million tonne facility, also in Kitimat.

By the end of the next decade, British Columbia could have at least 40 million tonnes of LNG capacity. To put this in perspective, Australia currently has the world’s largest LNG capacity of more than 80 million tonnes.

Read part two here.

Ng Weng Hoong is a veteran reporter with over 30 years of experience covering the energy industry mostly in Asia. These days, Ng watches the world from his Vancouver apartment. His focus is increasingly on China, its impact on the Chinese diaspora, and the complex relationships that they have with each other and other countries.