Oregon LNG export proposals could help send Canadian gas to Asia


CALGARY -- The Oregon coast could play a key role in helping to get Western Canada's vast natural gas reserves out of the ground and on to ships destined for Asian countries that need it.

At least two companies, Oregon LNG and Veresen Inc., are proposing to build liquefied natural gas terminals in Oregon for which Canadian natural gas would be the primary supply source. It's not likely to be the silver bullet for Western Canada's struggling gas business, but it illustrates that Canada and the US won't always be competitors in the North America wide push to kick start the nascent LNG industry.

The proposed Oregon projects could open a new door for Canadian natural gas producers that would otherwise have to rely on proposed projects based out of Kitimat or Prince Rupert to tap overseas export markets.

Oregon LNG CEO Peter Hansen argues the Oregon option will be a boon to Canada's "economically stranded" small and medium sized natural gas producers, which are not likely to have the capacity to be significant players in major companies' LNG projects.

"It does create a reasonable outlet for small and medium sized producers," Mr. Hansen said of his proposed terminal on the Skipanon Peninsula in Warrenton, Oregon.

"Canada can produce so much gas that no matter how many LNG plants are built, there will be more than enough gas for them. We will be an outlet for some gas that otherwise simply wouldn't have a market."

Western Canadian natural gas prices remain in the doldrums, and many producers are struggling to remain viable.

Canadian producers desperately want to get into Asian markets to expand their customer base and take advantage of higher prices across the Pacific. Asian nations want access to North American gas, which they believe can lower their energy costs.

But building LNG facilities to export natural gas is expensive, time consuming and risky in a global energy market prone to quick seismic shifts. When Mr. Hansen originally envisioned his project in 2004, it was based on the premise that North America was facing a shortage of gas and the facility was originally meant to be an import terminal. But new fracking techniques have brought massive new supplies of US shale gas online, and have transformed the Unites States into a country searching for natural gas export markets.

Oregon, like the British Columbia coast, has the advantage of being a relatively short shipping distance to key Asian ports in China and Japan, and Mr. Hansen now views his planned C$6 billion terminal as "just another British Columbia coast project." Although the project near the mouth of the Columbia River faces regulatory hurdles and environmental concerns, Mr. Hansen is looking to secure an export licence by the end of the year. He is also trying to find equity partners from Canada, the United States and Asia.

"We believe that it's beneficial to have partners from both the supply and the consuming end," said Mr. Hansen, who was a speaker at a Calgary LNG conference last week.

Both Oregon LNG and Veresen, which is betting on its Jordan Cove LNG project, are each looking at export capacities of 9 MMtpy. Both terminals will be smaller than many planned Canadian projects, but they won't be insignificant. Apache Corp. and Chevron Canada Ltd.'s proposed Kitimat LNG terminal would ship up to 10 MMtpy, if built. LNG Canada, a planned joint venture than includes Shell Canada Ltd., Korea Gas, Mitsubishi and PetroChina Co. would export 24 MMtpy.

Tom Valentine, a senior partner with Norton Rose Fulbright in Calgary, said the Oregon LNG project has a number of benefits, including an easier passage from harbor out to sea than proposed LNG terminal locations in Kitimat.

"That Oregon project, and/or that Jordan Cove project, will give Canadian producers a new avenue into Asian markets. But that in and of itself is probably not going to give us the impact that Canadian producers are looking for," Mr. Valentine said, adding, "it's one means of many."

Dow Jones Newswires

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