According to Global4Energy, Petronas, which reportedly has a 25 percent interest in the $40 billion LNG Canada Project will be limiting production to between 50 and 200 million cubic feet per day from wells in northeastern B.C.
The wells are capable of producing 700 million cf/d, the CEO of its Canadian branch says. According to the Canadian Press, Mark Fitzgerald, CEO, Petronas Energy Canada Ltd., said that the lower oil prices in Western Canada are liable to full crude pipelines.
“We talk a lot about oil infrastructure. Gas is trapped as well and if you compare the prices that Canadian gas producers are receiving against our US peers, the differentials are significant and costing us a significant amount of money,” Fitzgerald said.
Petronas invested heavily in Canadian LNG
From 2012 to 2016, the Malaysian company invested heavily in natural gas exploration in northeastern British Columbia. To prove the potential of LNG being a resource needing an LNG terminal, the company employed up to 25 rigs, however, it is running only one rig now, Fitzgerald said.
Petronas backed out of its $36-billion Pacific NorthWest LNG project in July 2017, citing “prolonged depressed prices and shifts in the energy industry having led to this decision,” according to CBC Canada.
Petronas turned around and joined the LNG Canada partnership led by Royal Dutch Shell last May. This project is expected to go ahead this fall, but it isn’t expected to be ready to begin supercooling natural gas and shipping it out until late 2023 or early 2024.
Better technology and U.S. shale boom
Most analysts blame the slowdown on new drilling technologies being used in northern B.C. and Alberta. Add to this the same thing going on in the U.S. with its shale boom, and the stage was set for Canada to be hurt. The result was cheaper gas prices displacing western Canadian gas in markets like California, Eastern Canada, and New York.
The only thing LNG producers can do is to curtail LNG production to avoid selling their natural gas at prices that often do not even cover the cost of pipeline transportation.
IHS Markit associate director Ian Archer was quoted as saying that “condensate wells typically contain high levels of natural gas and the boost in gas production back to over 16 billion cf/d overwhelmed pipeline capacity and dropped gas prices this year to a projected C$1.43 per gigajoule.” The price is about one-third of the price in 2014.
Meanwhile, the U.S. benchmark Henry Hub spot price is forecast to average US$3.17 per GJ in 2018 (about C$4.12), according to the U.S. Energy Information Administration.
