Russ Oil-Gas

January 19, 2009 - Canada.com - Canwest News Service by Marianne White - QUEBEC - The proposed liquefied natural gas terminals in Eastern Canada risk never seeing the light with the current economic crisis and plummeting energy prices, economists and analysts warn. The growing demand for fossil fuel drove Canada to jump into the race for liquefied natural gas (LNG) terminals to supply the U.S. Northeast market. It was also part of a plan to secure domestic supplies as gas stocks in Western Canada decline and demand grows. At the height of the enthusiasm for such projects around 2005, Canada had more than six proposals in Atlantic Canada and Quebec.
Half of those have been mothballed recently for lack of supply and observers expect the remaining projects will be put on hold indefinitely, aside from the Canaport LNG terminal already in construction in Saint John, N.B. "All the other projects will be put on the back burner," anticipates energy economist Jean-Thomas Bernard from Laval University in Quebec City. He said energy prices and market conditions don't make it viable. "With the recent surge in gas prices in Europe and the extremely high prices in Asia, the gas will go there, not to North America where prices are rather low," he said. Unlike crude oil, the price of natural gas isn't equal all over the world. For LNG terminals in Eastern Canada to be profitable, prices would need to be higher on the receiving end than in Europe, Bernard noted. And he doesn't see that happening in the short or middle term. Quebec and Ontario are entirely dependent on natural gas from Alberta and if the demand starts to exceed the offer before LNG terminals are built, Bernard said prices are likely to go up. "We could see episodic surges," he said. The Canaport terminal is expected to begin operations in the second quarter of 2009. It will be the first regasification plant in Canada, sending out natural gas to both Canadian and U.S. markets. There are three other proposed LNG facilities on the Canadian East Coast, two in Nova Scotia and one in Quebec. There are also three projects in the works in British Columbia. One of the most controversial projects is Quebec's Rabaska. Opponents have underscored for years the risks of allowing big tankers carrying liquefied gas to enter the St. Lawrence River, just 10 kilometres downstream from the historical Quebec City that has been recognized as an international heritage site. While the UNESCO is studying their request to halt the project, opponents have found new hope in the collapsing economy. "The economic arguments don't stick anymore," stressed Jacques Levasseur, president of the opposition group Stop au Methanier. "Russia has made it clear the era of cheap gas is over," he added. The $840-million project is spearheaded by a consortium that includes the world's biggest natural gas producer, Russia's Gazprom. It joined forces with Quebec's Gaz Metro, Alberta's Enbridge and Gaz de France to invest in the Rabaska gas terminal to be built on the south shore of Quebec City. The promoters signed a letter of agreement with Gazprom last May to negotiate the supply of natural gas from the Shtokman gas fields in Russia. A deal was expected to be reached before the end of 2008, but the talks are hampered by the economic crisis. Rabaska's president Andre L'Ecuyer acknowledged Gazprom has been hit hard by the crisis and that its financial resources aren't quite the same as a year ago. "Some parameters of the agreement are more difficult to tie together. We are still negotiating but it isn't easy," L'Ecuyer said. Gazprom has to invest $18 billion on infrastructures to extract the gas from the Barents Sea, freeze it into liquid from and ship it to Quebec on tankers. Analysts think it's a huge investment Gazprom might not be able to make if energy prices remain low. The Russian giant lost $20 billion in 2008 because of plummeting oil and gas prices. Russia specialist and historian Tristan Landry noted that Gazprom is cash-strapped and was forced to halt all its infrastructure and development projects. Considering the hefty price tag attached to the Rabaska project, he thinks the Russian company will be tempted to drop that complex project first. "I think Rabaska will be dropped because it requires extremely costly infrastructures to turn the gas into a liquid form and if Gazprom has any money left, the company will favour the Bovanenkovo project," he said, referring to a Russian field in the Arctic Yamal peninsula that will be linked to a pipeline network. ut an expert on the world energy scene believes Russia and Gazprom probably have reasons other than just the economics to bring gas to Eastern Canada. "The Russians have every incentive to keep their end of the bargain," said John Foster, former lead economist at Petro-Canada and World Bank. The retired consultant noted that the Rabaska project would open the U.S. market to Gazprom. "The Russians want to have some diversification from Ukraine because they are enormously reliable on Ukraine to get their gas to Europe," he stressed, adding the current crisis between Russia and Ukraine exemplifies that. "There are geopolitical games at play and the battle for control of the energy resources is a great big one," he added.