Quebec begins major LNG project

Jul 04, 2004 02:00 AM

Quebec's dominant natural gas distributor has embarked on an ambitious project to import LNG so the province won't be entirely dependent on Alberta as its sole source of natural gas.
Gaz Metropolitain has chosen its two partners for the project that would cost more than $ 2.7 bn, and has picked a site for a deepwater port and gas terminal near Quebec City. Enbridge of Calgary, a part owner of Gaz Metropolitain, and Gaz de France, the leading gas utility in that country and a specialist in LNG, are the other partners in the Rabaska project.
Gaz de France would be responsible for the $ 2 bn cost of securing contracts with suppliers, building LNG terminals at the supplier and providing four tanker ships to bring the liquid gas to the port on the St Lawrence River.

Quietly announced in April after two years of feasibility studies, the Rabaska project has just begun a two-year long regulatory stage of scrutiny by government agencies for environment, security and energy competition concerns. After that, it is expected it will take another three years to build a wharf, two storage tanks and equipment to turn the liquid back into gas and a 50 km pipeline. Gaz Metropolitain and Enbridge would foot the $ 700 mm bill.
A series of meetings with local residents and other stakeholders begins in July. Fears have already been raised of an LNG explosion and fire like one that occurred in Algeria in January. Despite early opposition from locals, the promoters believe the project will be realized and start to function by 2009, to provide an alternative for Gaz Metro's 150,000 residential and industrial customers.

The Rabaska project emerged after Gaz Metropolitain and partners failed to get approval for a natural gas pipeline to bring Sable Island gas to Quebec, explained Gaz Metro spokesman Jean Simard. With demand still growing, Gaz Metropolitain said it does not want to be entirely dependent on gas transported from Alberta via pipeline.
Simard said the other customers between Quebec and Alberta have opted out of the Canadian pipeline and tapped into cheaper sources in the United States, leaving Gaz Metropolitain almost alone to cover the costs of 4,000 km of pipeline transportation.
"We've been trying for 20 years to diversify our gas sources, to get out of the captive situation we're in with TransCanada PipeLines," Simard said. "When you're paying for it all by yourself, the pipeline is pretty expensive."

The feasibility studies discovered that the gas can be bought much cheaper in Norway. Simard said other sources could include Algeria. While natural gas prices in North America fluctuate in step with the price of oil, LNG is sold in long term contracts and shipped through terminals built for each customer. Mr Simard said there are four LNG terminals in North America, while another 40 are under study.
Calgary-based WestPac Terminals said it has entered into an agreement with Ridley Terminals, a federal Crown corporation, to build an LNG terminal at the port of Prince Rupert, BC. Also expected to reach completion by 2009, the Prince Rupert terminal would receive LNG from the Middle East, Indonesia and Australia for natural gas markets in western North America.

Energy analyst Wilf Gobert with Peters & Co. in Calgary said the Rabaska and Prince Rupert projects are in the context of "a big movement within the United States to increase the supply of LNG." Mr Gobert said North American gas prices have risen over the past four years, along with higher demand and dwindling continental supplies, all of which make LNG more viable, even though it has high installation costs.
"One of the biggest risks (for LNG projects) is if gas prices were to go down significantly, it would be uneconomical," said Mr Gobert, adding that it is more likely the current high oil price environment will persist.

Mr Gobert said a major challenge to establishing LNG terminals is local support, noting that residents of a town in Maine recently voted against one.
"There's a bogeyman attitude towards LNG terminals; people think you've got a floating bomb," he said.
Rabaska needs approval by provincial and federal environment boards, the National Energy Board, Transport Canada and the Canadian Coast Guard. Enbridge would use the gas to supply its customers in Eastern Ontario.

Source: Globeinvestor
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