Canada at competitive disadvantage for LNG export?

OTTAWA, Aug. 23 (UPI) -- Development costs for Canadian liquefied natural gas projects could make it more difficult for Canada to compete with the United States, a trade industry report says.

"Project costs in Canada far exceed counterpart projects in the United States where the natural gas market is much more liquid," said the report, released this week by the International Gas Union, based in Norway, whose 110 members represent more than 95 percent of the world's gas market. "Moreover, the distance between the proposed export facilities and the North American gas pipeline grid is large, and connections are small in both capacity and number."

By comparison, projects in the United States are likely to be more flexible because many are designed to take advantage of existing infrastructure, and thus are cheaper to commission, the IGU said.

Research and consulting firm Eurasia Group estimates it could cost $50 billion to convert existing liquid-gas import plants in the United States into export plants, while it could cost an additional $60 billion to build such plants from scratch in Canada.

The IGU report comes as the race to supply the Asian market with LNG further intensifies.

Washington approved a third U.S. LNG project this month, a $2 billion facility on the Louisiana Gulf Coast, and more such projects are awaiting approval.

The Canadian government so far has approved three LNG export applications, including projects led by Chevron Corp. and Royal Dutch Shell. Four more projects filed this summer are pending, including one large-scale plant by Exxon Mobil Corp. and two more major terminals by BG Group and Petronas.

Shell, for example, has set up a consortium -- LNG Canada -- with three Asian companies Mitsubishi Corp. and PetroChina Co. Ltd. Korea Gas Corp., known as Kogas, to build an export terminal and ship 24 million tons of natural gas a year.

Kogas is one of the world's largest buyers of LNG.

Yet the IGU report notes that "despite numerous marketing leads for Western Canada's slate of projects, there are currently no finalized agreements" with Asian Pacific countries to buy the gas.

Because a number of companies are jostling for space on Canada's West Coast, the IGU said "there may be (an) opportunity to aggregate resources and share infrastructure" in order to avoid the huge cost overruns experienced by Australia's LNG developments.

A spokesman for Shell, whose name was not reported, told Canada's Financial Post it is premature to comment on such partnerships as suggested by the IGU report.

Chevron spokeswoman Gillian Riddell said the concept of sharing infrastructure is an "interesting model," but she noted early works including site preparation, pipeline route selection and clearing are already being carried out.