Tag Archives: Liquid Natural Gas

Shell plans Calgary LNG plant

(Source: CBC News) Dutch oil giant Royal Dutch Shell plans to make a plant near Calgary to process natural gas as a fuel for heavy duty vehicles.

The company says it wants to produce liquefied natural gas or LNG at its Jumping Pound facility in the foothills outside Calgary by 2013. Shell currently sells LNG for the transportation sector at some of its Flying J truck stops, but that fuel is provided by third-party partners.

The Jumping Pound facility will be Shell’s first investment of its kind for Shell globally and will include production facilities and downstream infrastructure. The company did not provide any specifics for the number of jobs that might be created at the plant.

Global LNG capacity is expanding exponentially, as major companies move to create LNG infrastructure to keep up with growing power demand, especially from Asia.

Earlier this year, Shell announced it would create the world’s largest floating object ever — a platform capable of producing 110,000 barrels per day, moored 200 kilometres off the coast of Australia, that’s larger than four football fields.

Driven to export the fuel to the Chinese market, other Canadian energy names are rushing to increase LNG capacity in British Columbia. Shell is itself looking at working with Chinese, Korean and Japanese firms to build an LNG export facility on B.C.’s coast.

LNG is prized as a fuel because once cooled to a suitable temperature, it takes up less than 0.2 per cent of the volume it does in gaseous form. It also burns cleaner than petroleum fuels, and is comparatively abundant.

It’s already widely used among heavy industries and some mass transportation vehicles such as city buses. But it is not yet prevalent with passenger vehicles. Companies have been looking at the transportation sector as a potential new market for a commodity that has dwindled in price for the past several years.

“With an abundance of natural gas and a growing need for low-emission transportation fuels, today signals a very important step for a significant North American resource,” Shell Oil president Marvin Odum said.

“As global demand for transportation fuels increases, including for LNG, Shell is well positioned to meet this demand.”

Shell will partner with Canadian green technology firm Westport Innovations, in a co-marketing agreement to help make gas-powered vehicles more widely accepted with consumers.

“We believe the use of natural gas as a fuel for transportation will accelerate,” Westport CEO David Demers said. “The North American launch is an important first step.”

TSX-listed Westport shares were briefly halted on the news, but the stock gained nearly 17 per cent — or $3.84 — to $26.50.

Shell is also partnering with Wärtsilä North America to promote LNG in the U.S. marine industry, and with General Electric’s transportation division to promote the use of LNG to power the railway industry.

Four reasons natural gas prices will not stay depressed

Today, in the Globe & Mail published an article by Jiri Maly a principal with McKinsey & Co. titled “Four reasons natural gas will stay depressed”. Mr. Maly raises four points that he suggests will keep natural gas prices “depressed”. However, Mr. Maly fails to put his points into the context of time. Instead he mixes past and present situations giving the reader a confusing outlook for natural gas.

The first of four points raised by Mr. Maly is “there has been a structural shift in the supply of natural gas away from conventional production, where individual wells target discrete pockets of natural gas, to unconventional sources, where many wells are required to unlock previously unrecoverable gas from rock formations such as shale.” This is true. And the end result is that there are higher natural gas reserves in North America. The US has estimated a 39% increase in natural gas reserves in the US due to shale gas and other unconventional sources. However, it still needs to be extracted. It is this recovered natural gas that impacts supply inventories and ultimately prices. While new shale gas discoveries have brought on more natural gas into the system which contributed to lower prices, natural gas producers have responded by starting to shut in as much as 50% of their current production. These cuts in production have yet to be fully realized in the down-stream supply inventories. Mr. Maly does not even mention these production cuts giving the impression that the conventional wells continue to produce along side new shale gas production which is simply not the case. On the exploration front, only 31% of the Alberta’s rigs are active, and drilling activity in the US is at a 7-year low.

But there is a more important impact of the  increase in natural gas reserves brought about by shale gas plays like British Columbia’s Horn River basin. This new abundance of natural gas fundamentally changes the way we look at natural gas as a long term resource and what role it will play in the long term energy mix of North America. As acknowledged by Mr. Maly, natural gas use to be viewed as a resource in decline. A resource that North America would have to import in order to meet domestic demand for natural gas.  That is no longer the case… which leads to the next point.

Mr. Maly’s second point “this robust North American gas production has been supplemented in recent months by higher imports of liquefied natural gas, or LNG, from Africa and the Middle East.” This is sort of true. A number of years ago when conventional sources of natural gas were looked to be in decline companies were engineering Liquid Natural Gas (“LNG”) plants on the coast lines of North America to import natural gas from other markets. However, the new abundance of shale gas has created a structural shift and changed the way we view natural gas as a long term resource. These LNG plants are now going to “export” LNG, and not import LNG. Case in point is Kitimat LNG in British Columbia which has entered into agreements with Korea Gas Corp.  and Gas Natural of  Spain where by each of these companies will purchase billions in LNG from Kitimat LNG over the next 20 years (See HRN: “Kitmat LNG signs deal with Korea Gas Corp. worth $20 billion” and “Kitimat LNG signs MOU with Spain’s Gas Natural”). Furthermore, Ms. Maly also fails to acknowledge the momentum (in the US) is not just about cleaner energy, but using energy from reliable domestic sources, and not from countries that are “unfriendly”. It is the key reason that Canada remains the number one supplier of oil to the US despite this oil being produced from oil sands which are often referred to as “dirty oil”.

The third point a ” major trend is U.S. energy policy.” Appears Mr. Maly is not aware of the most recent Nat Gas Act legislation in the US, or the $150 million recently approved by congress for research into natural gas vehicles. Part of the Nat Gas Act will double the tax credits for buying natural gas vehicles (up to $12,500 US) and building natural gas fill stations. US law makers want to see natural gas being used more in their energy mix in order to reduce foreign dependence on oil, and reduce green house gas emissions.  Point here is that the Nat Gas Act is a major piece of legislation that plays a big part in the US energy policy, and yet Mr. Maly does not even acknowledge it.

What he appears to acknowledge is the US coal lobbyists that have been working very hard and spending millions of dollars in the last couple years to promote coal as America’s abundant, affordable – and cleaner – resource as the solution to America’s energy needs (see HRN: “US coal lobbying money beats natural gas down”). And now with the increase in reserves and how natural gas is viewed as a long term domestic resource, natural gas is again getting attention as the abundant and affordable resource.  Natural gas producers have increased their lobby dollars realizing they have lost ground to the coal lobby in the last couple years. The difference being that natural gas is cleaner then coal. End of story. There is no proven technology that makes coal cleaner then natural gas. Instead what the coal lobbyists have done is to lobby for legislation that makes coal cleaner then it really is through carbon offsets. Which brings us to the next point…

Mr. Maly’s final point is  “the coal industry may prove to be more resilient to carbon dioxide regulation than previously thought.” Though carbon emissions do have an impact on those energy sources that will have favored government support they will have little impact on the actual commodity prices in the next year. Furthermore, we are seeing all of the fossil based fuels including both coal and oil sands claim that their carbon footprint may be lower then previously thought. Key word “may”. Unfortunately, as noted above, coal lobbyists are in fact making coal appear cleaner through the special use of carbon offsets. On an absolute basis, natural gas emits more then half the carbon emissions of coal.

On the point of technology innovation,  cleaner coal, cleaner oil sands and cleaner natural gas are welcome, encouraged and needed.  As it sits today, natural gas is the cleanest fossil fuel by far and therefore the most practical solution for reducing carbon emissions now.

Other comments… Mr. Maly fails to mention or believe that any improvement in the economy in the US and Canada would increase current demand levels. Few would agree with this point. Economic improvements will increase current demand levels. Natural gas demand may not return to pre-recession levels in the next year, but they will certainly increase from current levels and do so at a time when production cuts will begin to have effect on inventory. Add to this the potential demand increase from natural gas taking a greater share of the energy mix by increases in the number of natural gas vehicles and gas fired electricity plants.

The biggest problem with the article is Mr. Maly does not define “depressed”. Where Mr. Maly mixes historical information with the present market it is not clear where he stands. At $3.50 people generally agreed prices are depressed – especially if you are comparing it to $14. But the point is where are prices going. If natural gas goes from $3.50 today to $7 by the beginning of 2010, that would be a 100% increase. Pretty good increase (and return) but still arguably “depressed” compared to $14. Again, time context is important and we can no longer dwell on the historical peaks or the historical view of natural gas.

Prices will go up and down week to week. Looking at energy needs and the requirement to reduce carbon emissions, there is no more practical readily available resource today then natural gas. In the words of T. Boone Pickens “You cant beat natural gas!”. It will play a growing role in North America’s energy mix and a bridge to a cleaner energy future. Given these changes there is likely more upside then downside in the price of natural gas. Again, keep an eye on the inventory data in the US throughout August. And remember, supply will always fall faster then demand.

Globe and Mail: “Four reasons why natural gas prices will stay depressed”

Kitimat LNG signs MOU with Spain’s Gas Natural

logo_gas naturalKitimat LNG announced it has entered into a Memorandum of Understanding (“MOU”) with Spain’s Gas Natural (GAS.MC). Under the terms of the agreement, Gas Natural will acquire 30% of Kitimat’s output from their planned Liquid Natural Gas facility located in Kitimat, BC and provides Gas Natural an option to acquire and equity stake in the terminal.

The MOU will will see Gas Natural acquire up to 1.6 million tonnes of LNG a year from the Kitimat LNG facility for 20 years and is the second major supply agreement announced by Kitimat LNG in the last month. In early June Kitimat LNG signed a similar MOU with Korea Gas Corp (“KoGas”) to acquire 2 million tonnes of LNG a year from the terminal for 20 years. KoGas als has an option to acquire an equity stake in the terminal.

Originally planned as an import terminal until recent discoveries and technologies allowed extraction of massive amounts of shale gas in the Horn River basin and Montney basin in northeast British Columbia. Massive infrastructure investments from the BC Provincial government, Encana Corp, TransCanada and others will connect Kitimat with these massive natural gas reserves. Kitimat LNG will be a export terminal to sell natural gas to the international market – including KorGas and Gas Natural. Initial export capacity will be 3.5 million to 5 million tonnes of LNG per year.

Gas Natural supplies natural gas to 11 million customers in Spain, France, Italy and Latin America, and has a generating arm producing electricity in Spain, Mexico and Puerto Rico. It is also in a joint venture with Repsol (REP.MC) which operates a fleet of LNG carriers.

Reuters: Spain’s Gas Natural may take stake in Canadian LNG

Shale gas bullish for natural gas sector

It may be a contrarian position to be bullish on natural gas, but the list of analysts that believe natural gas will likely increase in price is getting longer.

The massive amount of gas being produced and discovered by shale gas plays throughout North America has certainly put downward pressure on natural gas prices. Only a a couple years ago there was discussion about “peak natural gas” production and how dwindling supplies would require the import of liquid natural gas (“LNG”) from overseas suppliers. However, the supply being tapped due to advancements in horizontal drilling and fracture treatment is enough to supply all of North America’s needs for many decades without any imports.

Back in March, a Bloomberg survey of 22 analysts indicated that 19 of 22 believed natural gas would appreciate to $7.00. Since that time, natural gas has appreciated to ~$4.00.

There are two major factors in determining the short and long term price of natural gas. First, is the seasonal price pressures. We do not know what the summer consumption of natural gas will be. If there is a hotter summer due to weather extremes encouraged from climate change or hurricane disruptions, we could see an immediate increase in consumption and increase in prices.

In the long term there it is obvious that natural gas will play a major roll in reducing CO2 emissions. With a lower carbon footprint compared to other fossil based fuels, and abundant supply, natural gas is the most practical energy source for immediately impacting CO2 emission by using more natural gas for transportaion and power generation.

Regardless, it seems apparent that once the economy turns positive demand for natural gas will increase. And once current programs are implemented into reducing CO2 emissions, uses for natural gas as an energy source will expand. Both will increase demand from current levels.

British Columbia’s shale gas next “oil sands” without the carbon

The solution for North America’s energy demand and environmental objectives is found in shale gas located in British Columbia’s Horn River and Montney shale basins. British Columbia is incredibly fortunate to have such a massive amount of natural gas – a viable, cleaner burning resource then current conventional resources derived from oil. It is easy to look beyond the market and current economic turmoil towards a future where British Columbia might become the number one producer and exporter of natural gas in Canada shipping to markets in the USA and Asia where natural gas is increasing in demand.

Currently, the Province of Alberta is the number one exporter of oil and natural gas and oil to our energy hungry neighbours to the south. The Alberta oil sands are key to the long-term security and supply of oil to the USA and despite current concerns about the carbon emissions this growing demand will not change. The US demand for Alberta oil sands will only increase and technology will eventually reduce the carbon emissions.

The next shoe to fall is BC shale gas. Long term natural gas demand will grow worldwide likely to double in the next year from current prices. Billions of dollars in infrastructure spending in British Columbia over the last couple months will increase access to the Horn River and reduce operating costs for exploration and development companies. In the last few months there has been a number of key announcements;

On top of the massive amount of money pouring into the region,  The BC government announced a new royalty plan to provide additional incentives to increase drilling in BC. Premier Campbell has done a great job in managing incentives to attract investment into BC’s oil and gas sector and encourage exploration and development.

Now in addition to the hungry American market, BC will have its first Liquid Natural Gas (“LNG”) export terminal near Kitimat open for operations in 2013 and open new export markets for natural gas in Japan, South Korea and of course China.

Investing in Horn River is a strategic long term investment that generates economic benefits in today’s downturn while preparing for the long term energy needs of the future. We always premise that natural gas is not the only solution but plays the most important and viable role in a overal solution that includes all other alternative energy sources. Natural gas is proven, available, and easily converted into existing facilities and vehicles. Expanded and distributed wisely, natural gas will serve as a evolutionary bridge towards a hydrogen energy system. In the meantime the two key energy sources will be Alberta  Oil sands, and British Columbia natural gas and Fort Nelson will be to BC, what Fort McMurray is to Alberta.

Transition Canadian transport network to natural gas

cng-car1

Toyota Natural Gas/Hybrid Prius. Toyota will launch their Camry in NG/H this year.

Why is natural gas so important? Certainly it is not the value of the commodity in today’s market. The price has come off from last year’s high and taken natural gas out of the spotlight for now. But natural gas is poised to potentially meet or displace oil as the single most important energy resouse for transportation. And for good reason.

Horizontal drilling and fracturing (where rock is broken to release the gas) has advanced dramatically over the last few years making it economically feasible to unlock natural gas from shale rock formation. Massive shale gas discoveries in Texas (Barnett Shale), Pennsylvania (Haynesville) and British Columbia (Horn River) have had major impact on the amount of natural gas available. This increase in inventory has contributed to bringing the price of natural gas down to current levels and some would argue will bring down the price further. However the increase in supply has also occurred at a time when industrial demand is down. But its these massive new discoveries, increased inventories and lower prices that create a world changing opportunity.

In the USA there is a massive push lead by oil billionaire T.Boone Pickens to build wind farms to power the grid and divert natural gas to the transportation network. His reasons are the same reasons Canada should be considering a similar move. 1) Natural gas is clean burning; 2) We have lots of it – especially with the additonal of shale gas and the improving trasmport of natural gas in its liquid form around the glove (Liquid Natural Gas or LNG).

By investing in the necessary support infrastructure and properly developing the shale gas of northern BC as much as a trillion cubic feet could be brought to market to provide afforable clean energy. British Columbia can also encourage invesment in hydro, wind and solar power to divert more natural gas towards the transport network. By converting transporation vehicles to natural gas we would reduce our carbon footprint by millions of tons. To start, the Canadian and BC government should convert existing government transport vehicles to natural gas. This will also create new (and needed jobs) by developing a large aftermarket for natural gas conversion which is under $5,000 per vehicle and a payback through increased fuel effeciency within 30,000 kms – probably within 1 to 1.5 year for most government vehicles.

So the opportunity here equates to more new jobs, less carbon emmissions and increased fuel effeciencies. Lets start now!