March 10, 2010, 2:27 PM EST
By Jim Polson and Paul Burkhardt
March 10 (Bloomberg) -- Apache Corp.’s biggest risk in developing North America’s largest natural-gas export terminal is increased global competition that could drive down prices and prompt customers to renegotiate multiyear contracts, an economist said.
The Houston-based natural-gas producer bought a 51 percent stake in the Kitimat LNG project in British Columbia in January, aiming to begin shipments in 2014. Apache said it plans to decide whether to build the terminal in the second quarter of 2011.
That’s when the company and its partners expect to complete contract negotiations to lock in sales for as long as 20 years, Tim Wall, president of Apache’s Canada operations, said in an interview. By then, engineers will have calculated the final cost of construction, now estimated at C$3 billion ($2.9 billion), Wall said.
“Kitimat might just work, but there is substantial risk,” James Jensen, a Weston, Massachusetts-based economist who specializes in international gas markets, said in an interview. “The number of LNG export projects proposed in Australia, for example, is quite large and could keep the Asian market in surplus for some time.”
Australian Ventures
More than a dozen liquefied-natural-gas ventures, which cool the fuel to liquid form for shipment by tanker, have been proposed in Australia to meet rising Asian demand. LNG exports will rise 4 percent in the year ending June 30, 2011, and will rise an average of 9 percent annually through 2015, the Australian Bureau of Agricultural and Resources Economics forecast March 2.
“There are a lot of Pacific terminals being proposed to come online about 2014, and you need a price tied to a long-term contract on the high side of $10 a million British thermal units to make them work,” Robert Ineson, an analyst for IHS CERA, said today at the advisory firm’s annual energy conference in Houston. “There’s going to be a race for contracts.”
Long-term contracts dominate the Asian LNG market so that developers like Kitimat can finance liquefaction plants for exports, Bill Cooper, president of the Center for LNG, a Washington-based trade group, said in an interview.
With North American gas prices slumping because of abundant resources and Asian prices propped up by rising demand, Apache and its Kitimat partners are seeking higher profits by selling Canadian gas overseas.
Stable Pricing
Wall, Apache’s Canada president, declined to discuss the prices it would need to proceed with the project.
“We’re looking at Kitimat to provide stable pricing in an alternative market to the New York Mercantile Exchange,” Wall said. “You’re no longer captive to the North American market.”
The Kitimat terminal, 1,180 km (733 miles) northwest of Vancouver, British Columbia, expects to ship gas tapped from fields in the province that has been selling at a discount to the benchmark price in the U.S. and Canada because of its distance from major markets.
Rising demand will make global LNG sales a “seller’s market” about 2014 or 2015, Philippe Boisseau, president of gas and power for Total SA, said at the conference.
New Markets
Korea Gas Corp., the world’s largest buyer of LNG, tentatively agreed in June to buy as much as 40 percent of the Kitimat terminal’s exports for 20 years. Gas Natural SDG SA, the largest gas company in Spain and Europe’s largest LNG importer, struck a preliminary agreement to buy 30 percent, also for 20 years. Pricing and other terms are being negotiated, Kitimat LNG President Rosemary Boulton said in an interview.
Production and transportation costs for Canadian producers will be low enough to make Kitimat competitive with other Pacific export terminals, Boulton said today at the IHS CERA conference.
Kitimat was conceived as an import terminal to meet rising North American demand at a time when domestic gas supplies were stagnating, pushing prices to more than $13 per million British thermal units in mid-2008.
Developers reversed plans in September 2008 after U.S. producers began using new drilling techniques to tap huge quantities of natural gas in shale formations. The benchmark North American gas price has fallen more than 73 percent since Kitimat’s decision.
As prices in North America began collapsing in late 2008, gas customers in Japan, the largest LNG importer, were paying record prices and have continued to pay a premium over North American prices.
The Japanese import price averaged $9.04 per million British thermal units last year, more than double the average $3.50 per million British thermal units available to producers in western Canada, according to data compiled by Bloomberg.
Contract prices are indexed to oil, an alternative power- plant fuel, in the absence of a global market to set the price, Steven Miles, an attorney at Houston-based Baker Botts LLP, said.
Source: http://www.businessweek.com/news/2010-03-10/asia-lng-supplies-could-hurt-canada-export-plan-update1-.html
By Jim Polson and Paul Burkhardt
March 10 (Bloomberg) -- Apache Corp.’s biggest risk in developing North America’s largest natural-gas export terminal is increased global competition that could drive down prices and prompt customers to renegotiate multiyear contracts, an economist said.
The Houston-based natural-gas producer bought a 51 percent stake in the Kitimat LNG project in British Columbia in January, aiming to begin shipments in 2014. Apache said it plans to decide whether to build the terminal in the second quarter of 2011.
That’s when the company and its partners expect to complete contract negotiations to lock in sales for as long as 20 years, Tim Wall, president of Apache’s Canada operations, said in an interview. By then, engineers will have calculated the final cost of construction, now estimated at C$3 billion ($2.9 billion), Wall said.
“Kitimat might just work, but there is substantial risk,” James Jensen, a Weston, Massachusetts-based economist who specializes in international gas markets, said in an interview. “The number of LNG export projects proposed in Australia, for example, is quite large and could keep the Asian market in surplus for some time.”
Australian Ventures
More than a dozen liquefied-natural-gas ventures, which cool the fuel to liquid form for shipment by tanker, have been proposed in Australia to meet rising Asian demand. LNG exports will rise 4 percent in the year ending June 30, 2011, and will rise an average of 9 percent annually through 2015, the Australian Bureau of Agricultural and Resources Economics forecast March 2.
“There are a lot of Pacific terminals being proposed to come online about 2014, and you need a price tied to a long-term contract on the high side of $10 a million British thermal units to make them work,” Robert Ineson, an analyst for IHS CERA, said today at the advisory firm’s annual energy conference in Houston. “There’s going to be a race for contracts.”
Long-term contracts dominate the Asian LNG market so that developers like Kitimat can finance liquefaction plants for exports, Bill Cooper, president of the Center for LNG, a Washington-based trade group, said in an interview.
With North American gas prices slumping because of abundant resources and Asian prices propped up by rising demand, Apache and its Kitimat partners are seeking higher profits by selling Canadian gas overseas.
Stable Pricing
Wall, Apache’s Canada president, declined to discuss the prices it would need to proceed with the project.
“We’re looking at Kitimat to provide stable pricing in an alternative market to the New York Mercantile Exchange,” Wall said. “You’re no longer captive to the North American market.”
The Kitimat terminal, 1,180 km (733 miles) northwest of Vancouver, British Columbia, expects to ship gas tapped from fields in the province that has been selling at a discount to the benchmark price in the U.S. and Canada because of its distance from major markets.
Rising demand will make global LNG sales a “seller’s market” about 2014 or 2015, Philippe Boisseau, president of gas and power for Total SA, said at the conference.
New Markets
Korea Gas Corp., the world’s largest buyer of LNG, tentatively agreed in June to buy as much as 40 percent of the Kitimat terminal’s exports for 20 years. Gas Natural SDG SA, the largest gas company in Spain and Europe’s largest LNG importer, struck a preliminary agreement to buy 30 percent, also for 20 years. Pricing and other terms are being negotiated, Kitimat LNG President Rosemary Boulton said in an interview.
Production and transportation costs for Canadian producers will be low enough to make Kitimat competitive with other Pacific export terminals, Boulton said today at the IHS CERA conference.
Kitimat was conceived as an import terminal to meet rising North American demand at a time when domestic gas supplies were stagnating, pushing prices to more than $13 per million British thermal units in mid-2008.
Developers reversed plans in September 2008 after U.S. producers began using new drilling techniques to tap huge quantities of natural gas in shale formations. The benchmark North American gas price has fallen more than 73 percent since Kitimat’s decision.
As prices in North America began collapsing in late 2008, gas customers in Japan, the largest LNG importer, were paying record prices and have continued to pay a premium over North American prices.
The Japanese import price averaged $9.04 per million British thermal units last year, more than double the average $3.50 per million British thermal units available to producers in western Canada, according to data compiled by Bloomberg.
Contract prices are indexed to oil, an alternative power- plant fuel, in the absence of a global market to set the price, Steven Miles, an attorney at Houston-based Baker Botts LLP, said.
Source: http://www.businessweek.com/news/2010-03-10/asia-lng-supplies-could-hurt-canada-export-plan-update1-.html
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