CNOOC weighs up LNG expansion in Canada

State-owned oil firm's newly acquired Nexen signs agreement to study possible construction of natural gas facilities on Canadian west coast

PUBLISHED : Wednesday, 13 November, 2013, 1:42pm
UPDATED : Thursday, 14 November, 2013, 1:24am

CNOOC, China's dominant offshore oil and gas producer, has agreed to examine the viability of building facilities on the west coast of Canada to liquefy and export natural gas produced from interior fields, as part of the country's efforts to secure more energy sources.

Calgary-based Nexen, which state-backed CNOOC bought early this year, has entered into an "exclusive agreement" with the government of British Columbia on the possible project at Grassy Point, near the port city of Prince Rupert.

"LNG [liquefied natural gas] export is the most attractive option for maximising the value of our Canadian shale gas business," said CNOOC chief executive Li Fanrong.

Li said the firm and its joint-venture partners, Japan's oil firm Inpex and engineering contractor JCG, had ample financial capacity and LNG expertise to pursue the project.

The project would go ahead only if the partners were satisfied with its economic appeal, which depended on construction costs, taxation terms offered by the British Columbia government and success in securing "acceptably priced" sales agreements, CNOOC said in a statement.

Rival PetroChina's parent China National Petroleum Corp already has a 20 per cent stake in another planned LNG export project in British Columbia.

Canada's Minister of Natural Resources Joe Oliver told the World Energy Congress in South Korea last month that seven projects had been planned to export LNG from his country, and more were expected so that as much as 60 million tonnes could be exported annually by 2020. It currently has no LNG exports.

East Asia is a prime target market for Canadian natural gas producers, which are increasingly under pressure to find new markets as their biggest market, the United States, has ramped up gas output from shale rock formations in recent years, causing a glut and sharply lower prices.

Royal Dutch Shell chief executive Peter Voser last month said Asian LNG demand was projected to surge from 140 million tonnes this year to 500 million tonnes in 2030.

Nomura Securities head of regional oil and gas research Gordon Kwan said that while there were uncertainties whether CNOOC's proposed project would go ahead, given it is subject to environmental impact assessment and approvals, it would bolster CNOOC's negotiation leverage against other gas suppliers in the Middle East, the US and Australia. "It's all about diversification of supply," he said.

The joint-venture shale gas fields of Nexen, Inpex and JCG are located about 900 kilometres from Prince Rupert and a pipeline will need to be built to link them to the proposed liquefaction and export facilities on the coast.

Neil Beveridge, a senior analyst at US brokerage Sanford Bernstein, said in a research report that while the US could dominate global incremental supply, export restrictions due to domestic opposition could limit its annual exports to 65 million tonnes by 2025.

Separately, PetroChina yesterday said it agreed to pay US$2.6 billion to Brazil's state-backed oil firm Petrobras for its stakes in three blocks of oil and gas fields in Peru, in the latest overseas acquisition deal by a state-backed Chinese firm.