Analysis Repsol YPF S.A, Irving Oil Ltd. positioned to reap revenues

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REBECCA PENTY
Telegraph-Journal

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Shale gas resources are not expected to displace demand for liquefied natural gas from the Canaport LNG facility as much as previously anticipated during next winter's peak selling season, analysts said Monday.

Enlarge Photo

Cindy Wilson/Telegraph-Journal

View of the three tanks and flare tower, far left, at Canaport LNG. If Canaport LNG were built in early 2008, they wouldn’t have gotten a drop of LNG, beacuase 2008 imports were the lowest in the last four or five years, an analyst says.

Repsol YPF S.A. and joint partner Irving Oil Ltd. are positioned to reap revenues off exported gas from the facility most during winter when gas prices in New England are highest.

And while long-term forecasts see much area demand for liquefied natural gas being met by the continent's stores of unconventional shale gas, projections for next winter look good for the Saint John facility, said energy consultant Zach Allen of Raleigh, N.C.'s Pan Eurasian Enterprises.

"I don't think you're going to see quite so much oversupply on the market that you're seeing right now," Allen said. "The amount of drilling that's been cut back particularly on the shales is fairly substantial."

Canaport LNG was scheduled to receive its first shipment of liquefied natural gas Monday but a spokeswoman said the target date is now for later this week.

Since the project began a few years ago, an abundant supply of previously hard-to-access gas in shale rock has started to come online with advancements in horizontal drilling and new pipeline development.

But the recession has meant drill rig activity across-the-board is down and production is expected to follow, according to Ray Deacon, a senior research analyst who covers oil and gas futures markets with Providence, R.I.'s Pritchard Capital Partners.

Deacon predicts production of natural gas on the continent will be down five per cent by the end of the year, adding that a large industry firm told him it expects companies will put out 10 per cent less.

"Really it's a reflection of the gas rig count going from 1,600 to roughly 700," Deacon said.

"You've let go of roughly 60 per cent of the most productive rigs, the ones drilling horizontally."

Canaport LNG is positioned to be a big player in the New England gas market pending deliveries of natural gas make their way to the Saint John terminal.

According to Chris Kostas, an analyst with Energy Security Analysis, Inc. in Wakefield, Mass., supplies from the terminal could even lower prices somewhat for gas in New England during peak demand periods in the winter.

"This added supply north of us would certainly have an effect to reduce prices but we don't expect that New England would ever trade at a discount to New York," he said.

New England markets are among the most expensive gas markets on the continent. During blistery months, demand from homes and offices using space heaters can drive prices up more than US$3 higher than at Louisiana's Henry Hub, a junction market of natural gas pipeline systems to which other markets are pegged.

"Canaport LNG has the best chance of importing a lot of LNG during the wintertime," Kostas said, explaining that with a global ratio of liquefied natural gas regasification facilities to liquefaction facilities at about two to one currently, there is a surplus of markets where tankers can unload.

He said Canaport LNG will only receive shipments when prices in North America warrant selling gas here over Europe and Asia, which in recent years - and last year in particular - have posted higher demand.

"If Canaport (LNG) were built in early 2008, they wouldn't have gotten a drop of LNG," Kostas said. "2008 imports were certainly the lowest in the last four or five years."