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T
he Canadian LNG industry entered the new decade with
only a single sanctioned LNG export project: Trains 1
and 2 of Shell-operated LNG Canada, located in Kitimat,
British Columbia (B.C.). Following LNG Canada’s positive final
investment decision (FID) in October 2018, sentiment around
Canada’s LNG potential grew increasingly cautious as 2019
progressed with no additional FID activity. By November 2019,
industry voices were warning of Canada’s late arrival to an
increasingly crowded global LNG market. 4Q19 impairments
by Chevron and Woodside of their respective shares in the
Kitimat LNG project only seemed to compound this sentiment.
Although Canada will not become the LNG behemoth
envisioned by industry players and policymakers prior to the
onset of East Asian price volatility in 2015, several
developments over the past year suggest that there may yet
be potential for additional large scale LNG development in
the long-run. Most importantly, there has been a concerted
push for greater integration between export projects and local
sources of supply, both in terms of upstream acquisitions
made by LNG operators, as well as producer-led export
initiatives. While current proposals vary in feasibility, the trend
nevertheless indicates that Canada’s active remaining LNG
players maintain a long-term interest in the industry.
The shift towards integrated LNG
models
Whereas LNG Canada always featured a high degree
of overlap between its working interest partners and
upstream suppliers in the prolific Montney play, smaller
LNG players have increasingly moved towards an integrated
model through major upstream acquisitions in the
Western Canadian Sedimentary Basin (WCSB).
Notably, in May 2019, Pacific Oil & Gas – an Indonesian
independent and developer of the 2.1 million tpy Woodfibre
project in Squamish, B.C. – announced an agreement to
acquire Montney pure play Canbriam Energy for an
undisclosed value. Rystad Energy estimated Canbriam’s net
present value (NPV) at approximately US$900 million at the
time of announcement, which included over 180 000 net acres
of Montney lands in northeast B.C. and some of the best
operating cost performance across the entire Montney play. In
addition to its high-value liquids yields and competitive cost
structures, Canbriam’s fractured horizontal Montney wells
typically featured lower decline rates, thanks in part to the
company’s water strategy and active well defence.
With the acquisition of Canbriam, Rystad Energy estimates
that Pacific will be able to ramp up its Montney output with a
modest level of drilling activity and operate as an integrated
LNG player by the time Woodfibre is commissioned in the
mid-2020s.
Pieridae Energy, which is aiming for a 2020 FID on the
first train of its 10 million tpy Goldboro LNG facility in
Nova Scotia, has likewise continued to push forward with a
more integrated development concept, following its
December 2018 business combination with Alberta Foothills
gas producer Ikkuma Resources. In June 2019, Pieridae
announced further consolidation of its upstream Foothills
position through the acquisition of Shell’s conventional legacy
assets in the area, whose production stood at approximately
120 million ft³/d of natural gas, 5700 bpd of natural gas
liquids (NGLs), and 3200 bpd of condensate and light oil. The
deal consisted of a cash consideration of CAN$175 million
and the issuance to Shell of 15.2 million common shares
valued at CAN$15 million.
The Shell transaction essentially doubled Pieridae’s
natural gas output to more than 200 million ft³/d, and the
company subsequently announced plans to grow production
to an ambitious 800 million ft³/d to supply the first
5 million tpy train of Goldboro in time for commissioning in
2024 – 2025. The company has indicated an upstream
investment program of approximately CAN$1 billion to grow
output, which would involve drilling between 25 and 35
development wells annually over four years. The upstream
development program is underpinned in principle by
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