Canada seen beating U.S. in $150 billion Asia LNG race

Canada is pulling ahead of the U.S. in a contest to be the first exporter of liquefied natural gas from the North American shale bonanza to Asia’s $150 billion LNG market.

An LNG terminal being built at a cove north of Vancouver financed by a Houston private-equity firm is scheduled to begin shipping the fuel across the Pacific Ocean in mid-2015, eight months before the first continental U.S. plant is slated to start. Canada’s government has approved twice as much LNG export capacity as its southerly neighbor, evincing a friendlier attitude toward selling domestic gas to the highest bidder and positioning the nation as the go-to source of gas in North America for overseas buyers.

International energy giants from Exxon Mobil Corp. to Malaysia’s Petroliam Nasional Bhd are considering terminal projects in western Canada to supply Asian utilities and factories that are paying more than four times the price of U.S. markets. Chevron Corp. said it’s focusing all of its North American LNG efforts north of the U.S. border because of the more favorable regulatory climate and closer proximity to Asia, making exports more profitable for producers.

“The smart money is going to Canada” to export LNG, said Michelle Foss, chief energy economist at the Center for Energy Economics at the University of Texas’ Bureau of Economic Geology. “They don’t have any objections to exporting gas and it’s closer to Asia, which cuts down on shipping costs.”

Project Risks

Taking gas from the vast fields dotting Alberta and British Columbia and super-chilling it to a liquid for ocean-going tankers has price risks. LNG terminals can cost tens of billions of dollars to construct and take decades to pay returns. That can make a facility obsolete should internal North American demand and prices escalate to where domestic sales become more profitable than exports, Foss said.

In addition, Canadian LNG developers counting on the tradition of basing sales on world oil prices could be undercut by Louisiana and Texas-based producers planning to link contracts to lower-cost Gulf Coast gas markets, said Dale Nijoka, global oil and gas leader at Ernst & Young LLP.

Three gas export projects have received permission to ship LNG from Canada’s Pacific Coast to destinations such as Japan and China, compared to just one in the U.S., on the Gulf Coast, according to data compiled by Bloomberg. In the U.S., policymakers and industry leaders are divided over how tightly to control gas exports for fear of driving up domestic prices for the power-plant and furnace fuel.

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