It’s been a big year for LNG – Liquefied Natural Gas. The possibility for west coast exports of LNG in Canada started off very hopeful in 2012, with both Shell and Apache making bullish statements.
But what’s happened is an unexpected twist – it looks like the “little guy” is going to be the first out of the gate. A small group called the BC LNG Cooperative, which includes several junior producers, will be the first in North America to export LNG.
And they’re using a new technology to do it. It’s a kind of David and Goliath story that can get lots of attention. Last week I talked with Andy Bell at Vancouver’s BNN (Business News Network – Canada’s equivalent of CNBC) studio on the subject of LNG, including an update on OGIB portfolio pick Golar LNG – which is at work on the world’s first floating export terminal. Here’s the transcript of my interview…
Andy: Okay let’s talk about liquefied natural gas. Golar LNG is getting a jump apparently on the competition in BC. The company is converting an LNG carrier into an LNG export terminal, and the idea is that it is going to float in the Douglas Channel and funnel the gas to Asian markets. Now the ship is still a year or two from finding its way to the region, but the company could have first mover advantage. As our next guest, we’re joined by Keith Schaefer,editor, Oil & Gas Investments Bulletin – great to see you, Keith.Keith: Thanks for having me, Andy.Andy: So tell us quickly who Golar is, and what’s their Norwegian role?
Keith: Well, Golar has been a real innovator in the sector for the last several years, they’ve been pioneering a lot of new technology and one of the things they did a couple of years ago was create the first floating natural gas import terminal, and those are called FSRUs, Floating Storage and Regasification Units. Here in Canada what they are going to do is design the world’s first floating export terminal, Floating Liquid Natural Gas. So as you said they’re going to design this over the next couple years and hopefully the Douglas Channel project dug by Kitimat will be the very first in the world where you have floating liquid natural gas terminals.
Andy: I thought that Shell was working on a giant thing called Prelude of Australia.
Keith: Yes, it’s going to be a massive project. It’s going to be the largest ship in the world about the size of six aircraft carriers. The beauty of this project with Golar here on the west coast of Canada is that it is going to make a lot of small amounts of gas economic. Prelude only works on massive TCF projects Trillion Cubic Feet. This is going to work in a lot of places around the world where it’s only small amounts of gas. And I’m excited for Canada — I think it’s going to give us a big leg up on the race to supply LNG to Asia.
Andy: And will they actually liquefy the gas on board this vessel?
Keith: Right, so now when gas gets liquefied, it goes like 600 to one… a huge condensing, and that gets done on these huge land-based import terminals that cost billions of dollars, and take up hundreds of acres. And now this is going to get done on a much smaller scale, economically, on a ship. And it’s not just to say that there’ll be one ship, they could end up having two or three or four ships in the channel, depending on how big they are able to make this project.
Andy: How will the natural gas be able to get to the BC coast, or is there a pipeline there already?
Keith: Right now the Spectra pipeline isn’t that big; it’s just a little over 100 million cubic feet a day, but there are plans to make it as big as either one to even 4 Bcf a day, billion cubic feet a day over the next few years as the bigger players in the sector Shell and Apache get ready with their projects, but I think what’s exciting here is that for the scale of project that they are looking at, they need that big pipeline and they need all that infrastructure…
Golar and the BC LNG cooperative here they can do this on a very small scale and make money. So they think they can, they think they can deliver gas to Asia for $6 to $7 per Mcf, so and have that ready in two or three years. So, like I said, pretty exciting stuff for Canada, really.
Andy: Fascinating, because I think the giant projects are talking about the end of the decade to get those going.
Keith: It has been a big year for LNG in Canada. They started off this year saying, yes — we’re going to have it ready by 2015. Then in the spring they moved it back to 2017, and now they’ve already moved it back to 2019. So for Golar to come in with a small BC LNG cooperative and say, hey – we think we can get this done on a much smaller scale and get it ready for 2015, that’s a big deal for Canada.
Andy: Got to leave it there. Keith Schaefer – thanks very much. Keith is editor of the Oil & Gas Investments Bulletin.
Editor’s Note: The key to finding Golar – and having it turn into a bona fide winner for the OGIB portfolio – was figuring out the LNG market early, and knowing where all the pieces fit. You see, LNG is going to be a savior for North American natural gas producers, but the problem is time: it might be the end of this decade before any significant shipments get sent overseas.I’ve found a play, though, that doesn’t need LNG to make great money. I expect it will be making very strong profits and cash flow as early as next quarter – in fact they have one of the highest netbacks (profit per barrel) of any natural gas company I’ve ever seen. Their economics are even as good as some oilcompanies.And it’s all because of a mega-profitable “freak of nature” resource. You can read all about it, including the junior company with the most leverage and upside, here in my brand-new research.