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Dear Subscribers

Pipelines, Pipelines, Pipelines

Highlights
  • LNG Canada pipeline sections delivered to storage ahead of construction start-up
  • Calima secures pipeline approvals
  • Chevron sale of equity in Kitimat LNG will create opportunity
  • Pipeline investments improving gas supply vs demand balance

LNG Canada Pipeline Construction - Oil and gas producers in western Canada are fixated on pipelines.  The lack of pipeline capacity restricts access to markets and competition to get access to what is available results in deeply discounted prices.  It’s all about the pipelines.  So, it was newsworthy when TC Energy, the company building the Coastal Gas Link pipeline to supply the LNG Canada facility at Kitimat, announced that the first segments of pipe had arrived at storage sites in anticipation of construction ramp up next year (Figure 1). 

Figure 1 - Segments of pipe used to construct the Coastal GasLink pipeline that will provide feedstock for the LNG Canada project have started arriving in storage yards ahead of construction start up next year.  Source TC Energy.

The $6.6-billion pipeline to provide the natural gas feed for the $40-billion LNG Canada project will stretch 670 kilometres from the Dawson Creek area in Northeast BC to the coast at Kitimat.  It will provide a new market destination for western Canadian gas.  This is just one of several LNG projects being developed in BC.

Calima Pipeline Approval - At Calima we are also fixated on pipelines because we need to access to both existing markets and the new markets being offered through LNG export.  Our recent announcement reporting regulatory approval to build a pipeline linking us to the existing infrastructure was therefore a very significant milestone

To view the ASX announcement click here

This means that all the necessary regulatory and environmental approvals are in-place.  Subject to funding the project is now ready to start construction.  The new pipeline will connect the Calima Lands to the major regional pipeline networks including those that will supply the LNG terminals at Kitimat.  This gives Calima cost-efficient access to market using existing infrastructure while delivering economic returns that would not be possible from a greenfield start-up project.

Chevron and Kitimat LNG - Chevron has signalled that its 50% stake in the Kitimat LNG project is potentially up for sale as it takes an $11 billion tax write down mostly due to devaluation of gas assets in the north east US.  Capital spending is being cut and Kitimat LNG is one of the obvious places to make a reduction.  One of the reasons is that it should attract strong interest from buyers.  In a recent analysis the Oxford Institute of Energy Studies predicted that Western Canada “is likely to offer one of the lowest-priced sources of global gas for decades to come”.  Not only is Kitimat LNG going to be one of the lowest cost producers of LNG it is also going to be one of the cleanest and if Canada were able and willing to use the provisions of Article 6 of the Paris Agreement it could earn carbon credits

Figure 2 – LNG from western Canada will have the lowest carbon footprint of LNG projects globally and if Article 6 of the Paris Agreement were enacted and utilised Canada could earn carbon credits. Source LNG Canada

Calima recently participated in a Canadian LNG trade mission to Japan where we met a lot of companies interested in securing access to future supplies.  A new entrant into Kitimat LNG would need to secure upstream feedstock.  In northeast BC, where Calima has its acreage position, condensate production can finance the upstream development meaning an LNG producer would have access to low-cost gas feedstock protected against future price increases.  That is an attractive combination which will attract new entrants.  A consortium of nine Montney producers, known as Rockies LNG, are currently looking at options for floating LNG terminals on the west coast.  Well here is a ready-made project they could step into that has recently had its export license increased from 10 million tonnes pa over 20 years to 18 million tonnes pa over 40 years.  Let’s not forget that ConocoPhillips are investing C$6.7 billion to expand their production base in the Montney so there is another potential buyer.  There is a healthy field of potential counterparties available should Chevron offer some or all of their interest.  As far as we are concerned anything that shifts additional gas molecules to market is positive for the future of the Montney.

Pipeline Investment Improving the Supply Demand Balance –Media focus is on the LNG mega projects, however it is investment in other pipeline infrastructure that is quietly delivering improvements in gas prices.   Futures curves for western Canadian gas have been showing steady improvement over the last nine months.  We watch this very carefully as it continues to improve the economics of development across the Calima Lands.

Earlier this year AltaCorp published a research note predicting that pipeline capacity in western Canada should exceed supply sometime in the next 18 months (Figure Three).  This has nothing to do with LNG and it is happening right now, so it has our attention.  The graphic in Figure 3 does however explain why media and industry attention is on LNG because it will deliver transformative change across the basin.

Figure 3 – Western Canadian gas supply and demand showing that pipeline capacity and domestic gas demand overtakes supply sometime between Q4 2019 and Q1 2021.  Modified after AltaCorp Capital, October 2019.

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Alan Stein Glenn Whiddon Micheal Dobovich
Managing Director Chairman In-Country Manager
E: astein@calimaenergy.com E: glenn@lagral.com E: mdobovich@calimaenergy.com
T: +61 8 6500 3270
 
T: +61 0 410 612 920  
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Copyright © 2006-2019 Calima Energy Limited, All rights reserved.

Our mailing address is:
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