War in Ukraine reignites East Coast dreams of building LNG export facilities

An aerial view of Irving Oil’s Canaport marine terminal near Saint John, New Brunswick, August 27, 2013.Christine Muschi/The Globe and Mail

In the race to build terminals to ship liquefied natural gas from Canada’s east coast to an increasingly desperate and lucrative European market, perhaps no proposition is closer to reality than one centered on a underused port in the Bay of Fundy in New Brunswick.

Repsol, the Spanish oil and gas giant, is once again evaluating what it would take to convert its Saint John LNG import terminal – the only operational one in Canada – into an export facility that could ship gas across the Atlantic. It is estimated that such a conversion, which would include the construction of a liquefaction plant to cool the gas, could cost several billion dollars.

There are other challenges, such as securing a source of gas, since Atlantic Canada is years away from producing its own reliable supply. Repsol would need to find a supplier, most likely in Pennsylvania or Alberta, and then expand the existing pipeline network.

But industry watchers say that, given the high costs, inevitable regulatory delays and time required to build new LNG plants, the Saint John facility could be further along than any other potential export project. of LNG in Canada.

“The infrastructure is already there,” said Paul Barnes, director of Atlantic Canada and the Arctic for the Canadian Association of Petroleum Producers (CAPP). “They just need a buyer and a seller for the gas and then just connect the two.”

There are logistical issues, of course, if Repsol wants to reverse the flow of the Brunswick Pipeline, which currently carries natural gas from Saint John to the northeastern United States. But the economic evolution of natural gas makes such a proposal increasingly attractive; Gas prices in North America are a fraction of those in Europe, where countries are trying to find alternatives to Russian supplies due to its invasion of Ukraine.

“It’s really about getting the project financed in a way that eliminates risk,” said Todd McDonald, president of Energy Atlantica, a Halifax-based gas trading company. “And it comes down to Europe’s willingness to sign long-term fixed-price contracts.”

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A long-term contract, McDonald said, would eliminate natural gas cost volatility and give Repsol the certainty it needs to invest in the project. In 2015, the Madrid-based company proposed to convert the Saint John terminal, formerly known as Canaport, into an export facility, but the project was scrapped when gasoline prices fell again.

At the time, the company said it would use gas from the northeastern United States and fields in western Canada, totaling 785 million cubic feet per day, according to documents filed with of the National Energy Board. With natural gas prices this spring in Europe reaching 10 times those in Alberta, that plan is now much more commercially viable, McDonald said.

Exporting natural gas would give a second life to the facility from Repsol, which began importing LNG in 2009. The terminal opened just as shale gas was discovered in the United States, and the boom of domestic production severely compromised the company’s plans to supply New England with gas from overseas.

Due to the cheap and plentiful supply of US gas now available, the Saint John terminal is only used on a few peak days in the winter when demand increases and there is a market for foreign LNG. . The facility, which mainly imports gas from Trinidad and Peru, is idle the rest of the time.

“For most of the year, it’s a locked-in asset,” McDonald said. “They built this facility on pure speculation, thinking, ‘We’re going to bring gas to North America and make a lot of money.’ So I think they are a bit shy.

Repsol bought the remaining share of the terminal from Irving Oil in November, a move it says gives it full control over the future of the facility. The company said it was considering all options to expand use of the terminal, which has the capacity to ship 1.2 billion cubic feet of natural gas per day, but declined to comment further.

“Repsol is continuously exploring options to maximize the value of the terminal, with a particular focus on new low-carbon opportunities to meet market demand and support the energy transition. The company will review all activities that enhance or create value at Saint John LNG,” spokesperson Mike Blackier said in an email.

Repsol’s rivals are also exploring new ways to build LNG export facilities in Canada that would serve the European market. In Nova Scotia, Calgary-based Pieridae Energy plans to build a floating LNG facility that would allow it to revive a plan to import gas from Alberta, process it at Goldboro, Nova Scotia, and export it to Germany.

Last summer, Pieridae announced that its $13 billion onshore LNG project in Nova Scotia would not proceed due to cost pressures and problems obtaining financing. Interest in the Goldboro facility, however, has increased significantly in recent months due to the situation in Europe.

“The irony is that if this project had been underway today, it would have cost billions and billions of dollars,” McDonald said.

Unlike Repsol, Pieridae already has the supply – from its own gas production assets in the foothills of Alberta’s Rocky Mountains – but does not yet have the LNG facility.

On the West Coast, Shell PLC SHEL-N is also exploring a potential expansion of its LNG Canada joint venture into British Columbia, envisioning increased global demand for a reliable supply of liquefied natural gas. While Canada had 18 proposed LNG export terminals just a few years ago, according to federal data, the Shell project is the only one under construction.

Meanwhile, in Newfoundland and Labrador, a plan to tap into the province’s abundant offshore natural gas supply is still years away from completion. The Newfoundland and Labrador LNG project, which is not expected to go into production until 2030 if approved, would transport gas from the Grand Banks through an undersea pipeline, convert it to liquefied natural gas, then would export to Europe.

Small pockets of natural gas have also been discovered in New Brunswick and Nova Scotia. But while companies have long considered a potential market for this gas in Europe, both provinces currently have a moratorium on hydraulic fracturing that prevents the development of these resources.

“The idea of ​​exporting LNG out of Atlantic Canada is certainly not new,” said CAPP’s Barnes. “But there’s definitely increased interest in it right now.”

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