If you have been updating yourself about the recent developments in the world economic affairs, the sudden spurt in the references to West Coast of Canada must have caught your attention.??
Kitimat & Prince Rupert of British Columbia have shot to fame and all for the good reasons. I am referring to the increased interest in the West Canadian coast for the huge natural gas reserves. According to some estimates, there may be around 100 trillion cubic feet of shale gas reserves in the West Coast of Canada.
This has created huge opportunities for the British Columbian economy in general and the Canadian oilfield service companies in particular. Let’s get some background of the status quo and the possible future to better understand the benefits for the oilfield service companies in the region.
The North American markets have been very dull for the recent past. The reason being low LNG demand and low prices. Unlike the natural gas prices in Asia where the prices are linked to oil prices, the North American prices have been historically very low. Just to get an idea of the price disparity, the North American LNG prices range around USD 3-5 per million British thermal unit compared to USD 12-14 per million British thermal unit in Asia. The local demand for the natural gas has been low and the reserves are abundant. This has resulted into decreased activity of oilfield service companies. 2012 specially has been a very depressive year for the firms.
The renewed interest in the west coast can be attributed mainly to the following:
””?? I.”””’? International demand of LNG: In an era where energy have become the most sought for and the most critical resource for any Nation, the obvious rise in demand of LNG is but natural. Rise in demand from developing economies like China and India and major Asian economies like Japan, Korea etc. is the biggest factor in fuelling the overall demand for natural gas.??
In fact, Japan has huge interests in British Columbian natural gas. Japan is prepared to invest billions directly in west coast for construction of pipelines & liquefaction facilities. Earthquake and nuclear disaster has led to increase in public concern over safety norms in Japan. As per some reports only 2 out of 50 nuclear plants are operating currently. Japan is desperately looking at LNG as the clean energy source to fill the void created. Japan’s active participation in the Canadian natural gas sector has led to a race between Asian countries which was until now led by China.
”’? II.”””’? Increase in LNG prices: Led by increase in demand, the LNG prices have seen rise all around. Also the prices have been fuelled up by rise in input costs. The rise in price of steel, labor etc. and many environmental factors are pushing up the overall cost.
The North American LNG prices are expected to demand the higher prices as the exports increase and shorten the gap compared to the prices of Asian LNG. This will be a major boost for the industry.
” III.”””’? Strategic location of west coast of Canada: Western coast of Canada is at a very strategic location with respect to the natural gas markets. Transportation cost and time is quite low because of close proximity between west coast and Asian markets. In fact, it has good edge over Texas or Arkansas as an export center of North America.??
‘? IV.”””’? Supportive political environment: The political environment in British Columbia is very positive about the role of natural gas exports in the economy. This gives added benefits to Canada as compared to USA where energy conservation concerns are dampening the export’s growth. BC government offering of more than $120 million in royalty credits for work in the natural gas sector is an example of how a pro-active government can do great to the economy.??
Due to the reasons discussed above, Canadian west coast is witnessing huge inflow of Capital and foreign interest. Imperial Oil, Nexen Inc., Woodside Petroleum (Australia), SK E7S (South Korea), Royal Dutch Shell Plc., Chevron Corporation, Petronas (Malaysia) are some of the big names that have major interest in Canadian natural gas. LNG Canada is a joint venture of Shell Canada Ltd., Korea Gas Corporation (KOGAS), Mitsubishi Corporation and Petrochina. It proposes to build and operate LNG export terminal in Kitimat. There are a lot more such events taking place in the background.
LNG Exports & Canadian Oilfield Service Companies
- The LNG export from west coast is expected to be a multibillion dollar industry in making. This nascent industry has great futures. Also the timing of all these events could not be better. The west coast is expected to be ready for exports by 2020 which is the time when LNG demand will be double of what it is today.??
- With this huge market and so much capital coming in, Canadian oilfield service companies are set to gain and prosper.??
- The recent performance of the major oilfield service companies like Schlumberger, Halliburton, and Baker Hughes etc. has been quite shaky and unpromising. The British Columbian LNG export dream can give them the much needed boost.??
- These firms have great experience and expertise in natural gas drilling, pressure pumping, rig management etc. and these are the services that are at the core of the whole natural gas production process. While the infrastructural, pipelines, liquefaction and related process will be handled by the producing companies, the drilling jobs will mostly be handled by these oilfield service companies.??
- Already the onshore exploration service demand has started showing traction. If you look at the stock prices of these oilfield service firms, you will notice the change in the perception towards their future. Investors have noticed their potential. In fact some investors, who had been wary till now, are rushing to buy these stocks before they become too expensive.??
These firms are masters of their trade and have internationally acclaimed credibility and expertise. They are global giants and have major stake in the future Canadian west coast LNG industry. It’s up to them how they stand up to the opportunity at the doors.??