Because Asian gas prices are generally set based on a basket of crude oil (roughly 85% of Japanese Crude Cocktail or JCC), and western Canadian gas can be liquefied and shipped to Asia, there is a natural arbitrage opportunity for Western Canadian producers. Currently, gas prices in Asia are over $16/MMBtu, and Western Canadian gas is selling for sub $3 - a very large differential and attractive for Producers to exploit.
Several projects have been proposed to liquefy Western Canada supply for transport to Asian markets. The most advanced is KM LNG, located in Kitimat, and owned by Apache, EOG, and Encana, all with large land holdings in the Horn River Basin. The Canadian National Energy Board (NEB) conducted an Export Licence Hearing in June and a decision providing an unconditional 20 year permit was released in October 2011. Ziff Energy provided an expert report that presented a view to the year 2035 on North American supply, demand, and markets and testified at the Hearing.
Shell, China National, Korea Gas, and Mitsubishi are planning to start shipping LNG from Kitimat, British Columbia, as early as 2016. The companies aim to export 1.8 Bcf/d to 3.6 Bcf/d, which could double or triple KM LNG volumes. Nexen is selling 40% of its BC Shale Gas holdings to Inpex Corp for Cdn$700 million. Inpex Corp is a Japanese Consortium that owns controlling stakes in LNG projects in Australia and Indonesia and is building a regasification terminal in Japan. Canadian Progress Energy has closed an agreement with Malaysian Petronas to develop the emerging Hybrid Montney Silt/Shale Play and evaluate LNG export opportunities. For US$1.1 Billion, Petronas gained a 50% stake in Montney assets in Northeast BC.
For further information please contact:
Edward Kallio, Director, Gas Consulting,
edward.kallio@ziffenergy.com, 403-234-4275
Cameron Gingrich, Senior Manager, Gas Services,
cameron.gingrich@ziffenergy.com, 403-234-4296