LNG Canada terminal does little for short-term prices but boosts gas producer confidence

The approval of Canada’s first LNG export terminal is expected to boost investor confidence in Canada’s natural gas sector, industry observers say.

But LNG Canada’s ability to provide a new market for Western Canadian natural gas and thus support severely depressed prices won’t be seen until the facility and its main supply pipeline are built sometime in the middle of the next decade.

READ MORE: LNG Canada announces final investment decision to build export facility in Kitimat

Analyst Martin King of GMP FirstEnergy says the continued glut of gas in Western Canada and the march of American shale gas into its traditional markets including Eastern Canada have convinced him to roll back his forecast for a recovery in benchmark Alberta gas rates next year.

At an investor breakfast Tuesday, he said natural gas prices will average $1.57 per thousand cubic feet in 2019, just two cents higher than this year so far, and marked down from an earlier prediction of $3 per mcf.

READ MORE: New pipelines and better prices expected to drive higher Canadian crude output

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He says the Canada LNG project’s initial phase will require almost two billion cubic feet per day of gas to produce about 14 million tonnes per year of supercooled liquefied natural gas, thus increasing the market for Western Canadian gas by nearly 10 per cent when it comes on stream.

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Dale Dusterhoft, CEO of Trican Well Service Ltd., one of Western Canada’s largest oil and gas services firms, says he doesn’t expect any increase in drilling in the next year or so but the demand will start to expand gradually after 2020 as LNG Canada’s completion date nears.

“It’s excellent news that we can get an announcement of a major project in Canada,” he said.

Tweet This Click to share quote on Twitter: "It's excellent news that we can get an announcement of a major project in Canada," he said.

“The impact on the immediate market probably isn’t great, in terms of an immediate recovery of pricing, but if we can get this and others built behind it, it’s great for the long-term future of the Canadian business.”

READ MORE: Shell’s $40B LNG Canada project to be announced as early as Monday: report

Canada’s largest gas producer, Canadian Natural Resources Ltd., says it has about 100 million cubic feet of natural gas production halted because of low gas prices.

King said he estimates a total of between 300 million and 600 million cf/d has been shut in at various times this year in Western Canada for the same reason.

READ MORE: Five things to know about the proposed Pacific NorthWest LNG project in B.C.

The five partners in LNG Canada have agreed to build the $40-billion joint venture that includes a gas liquefaction plant in Kitimat on B.C.’s coast and a 670-kilometre pipeline delivering natural gas from the northeast corner of the province.

The partners — Royal Dutch Shell, Mitsubishi Corp., Malaysian-owned Petronas, PetroChina Co. and Korean Gas Corp. — delayed a final investment decision in 2016, citing a drop in global LNG prices.