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Canada looks to Asian markets amid LNG glut in US

09.18.2012  | 

A decade-long boom in US production of natural gas drove prices to a record low of $1.91 per million British thermal units in April, and has created more energy independence for the US, which is virtually Canada's only energy export market. Thus, Canada has set its sights on energy-hungry Asian markets.



TOKYO -- Canada has set its sights on energy-hungry Asian markets, especially for natural gas, after taking “a huge financial hit” as a result of the shale-gas boom in the US, Canadian Minister of Natural Resources Joe Oliver said.

Canada is developing five major liquefied-natural-gas export terminals on its Pacific Coast that, if all are completed, would enable it to export up to 66 million tpy of LNG - equivalent to about 80% of annual demand from Japan, the world's largest LNG exporter, Mr. Oliver told The Wall Street Journal during a visit to Tokyo.

“For Canada, these LNG projects mean opportunities to expand and diversify our export markets,” he said. “The opportunity is huge.”

Mr. Oliver arrived in Japan late Monday for a three-day visit focused primarily on meeting Japan's need for LNG.

A decade-long boom in US production of natural gas drove prices to a record low of $1.91 per million British thermal units in April, and has created a greater degree of energy independence for the US, which is virtually Canada's only energy export market.

US imports of pipeline gas, most of which come from Canada, slipped 1.7% over the past decade, while its total gas consumption rose 5.6%, data from the US Energy Information Administration showed.

The shale-gas output boom is expected to continue, turning North America into a net LNG exporter by 2017, the International Energy Agency said this year.

Meanwhile, LNG prices in Asia are especially attractive for global exporters, whether in Canada, the US or Australia. Spot LNG in Asia this year has averaged $13-$18/mmbtu, compared with $2-$3 mmbtu for US spot natural gas prices in the same period.

Similarly, light, sweet crude oil futures on the New York Mercantile Exchange have been around $90-$100/bbl since early August, while Asian benchmark Dubai crude oil averaged around $108 in August, according to price-reporting agency Platts.

Meanwhile, energy demand is growing in Asia, and Japan is especially hungry for LNG.

Japan’s LNG demand has risen sharply since the March 2011 Fukushima Daiichi nuclear accident as utilities have boosted output from gas-fired power plants to make up for idled nuclear capacity. Japan has idled all but two of its nuclear reactors.

Similarly, China's consumption of natural gas is expected to more than double over the next five years, driving average annual growth in global natural gas demand of 2.7% through 2017, International Energy Agency said.

“The US [demand] is not growing at the same pace with Asia,” Mr. Oliver noted.

Five LNG projects are being developed on Canada's Pacific Coast, including three at Kitimat, British Columbia. One of the three involves a joint venture between Shell, Korea Gas, Mitsubishi and PetroChina. It is expected to come online as early as 2014.

The Canadian government also aims to complete authorization of Enbridge’s controversial Northern Gateway oil pipeline by the end of next year, Mr. Oliver said. The pipeline would run from Alberta to a port in British Columbia, Canada's westernmost province, to ship oil to China and other buyers in Asia.

Other LNG projects, including in the US and Australia, are targeting Japanese demand, but Mr. Oliver expressed confidence in Canada's prospects. “It is Japan’s interest to diversify energy sources,” he said.

Mr. Oliver will attend an LNG conference in Tokyo Wednesday and visit South Korea on Thursday and Friday.

Dow Jones Newswires

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