Does the death of Energy East negatively impact Bear Head LNG?

It’s been a couple of weeks now since the news that TransCanada was giving up on the Energy East pipeline came out.

The announcement was not good for New Brunswick’s economy. But is it possible the death of the pipeline means a proposed liquefied natural gas export project on Cape Breton Island is also on its last legs?

That is the gist of a story that appeared in The Chronicle Herald on Wednesday.

In that story, Dirk Lever, head of research at Calgary’s AltaCorp Capital Inc. characterized the chance of the Bear Head LNG project getting built as not a snowball’s chance in hell, but “close to it.”

We love your optimism, Mr. Lever.

Still, for those who have been following Bear Head LNG from the periphery, it likely hadn’t dawned on them that the fate of the LNG project – slated to be built at Point Tupper, Nova Scotia on the Strait of Canso – was linked to Energy East.

However, one of the ways Bear Head LNG – a subsidiary of Australia-based Liquefied Natural Gas Limited – plans to get its supply of gas for the export terminal is through a pipeline from Ontario to Saint John, N.B. that would have run adjacent to the Energy East pipeline.

With Energy East no longer in play, would TransCanada be interested in building a natural gas pipeline to the East Coast to supply an LNG project that the proponents haven’t even sanctioned yet?

Another supply option for Bear Head LNG would be to get natural gas from the Marcellus and Utica plays in the U.S. through the Maritimes & Northeast pipeline. But in its 2017 annual report, LNG Limited writes:

Northeast U.S. pipeline projects intended to move Marcellus / Utica shale gas production east have been cancelled or deferred. These decisions may have detrimental effects on gas supplies available for export from the U.S. to Canada through the Maritimes & Northeast Pipeline system. The Company continues to explore other gas paths to move Marcellus / Utica supplies to the Bear Head LNG site.

Securing gas supplies to feed into the terminal isn’t the only problem the company has. There is also the question of customers. Bear Head LNG doesn’t have any who have signed long-term contracts to buy the stuff.

The global LNG market is currently oversupplied, and the spot price for LNG has been very low – settling at about $5.50 per million cubic feet in northwest Europe and Asia in 2017, according to LNG Limited’s annual report. As a result, buyers are holding off on signing long-term contracts to buy LNG.

“In this current oversupplied global LNG business cycle, commodity prices, economic drivers, and psychological factors buoy a wait-and-see strategy by most global LNG buyers,” the report says.

So is there any good news when it comes to Bear Head LNG?

There is, and the good news is that by 2022 global LNG demand is forecast – by some experts – to reach 400 million tonnes per annum (global demand was 260 mtpa in 2016.)

That extra 140 mtpa of LNG is going to have to come from somewhere, and Bear Head’s terminal, which would produce eight-to-12 mtpa, could be a potential solution for some LNG-starved buyer or buyers in Europe or Asia.

The company says it can’t provide “absolute certainty”on when it will make a final investment decision on Bear Head LNG.

In its 2017 annual report it does say that in order to capitalize on that growth in demand forecast to come by 2022, construction on new projects must begin in the 2018-2019 timeframe.

I am writing this blog on Oct. 20, 2017. The clock is ticking on Bear Head LNG’s window of opportunity.

2 Comments to “Does the death of Energy East negatively impact Bear Head LNG?”

  1. Is the clock really ticking? They bought the site cheap ($11 million I think), so I don’t see a big problem waiting to for conditions to change so the plan can be executed.

    • Darren Campbell // October 30, 2017 at 12:44 pm // Reply

      Hi Ralph: I think the clock is ticking – if the company has said publicly it must start construction on the project by 2018-2019 to have the terminal come online in time to take advantage of an LNG supply shortfall, then the sooner it makes an investment decision the better. Due diligence is needed, of course, but the company can’t sit on the project forever, especially if Goldboro LNG makes a decision to build its terminal in that same timeframe. Just my opinion though.

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