The $5.1 billion investment in the development comes at a key time, with Woodfibre gearing up for construction to begin next year.
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“Canadian LNG is a gem,” Enbridge CEO Al Monaco told an audience earlier this spring, touting the country’s potential to build a liquefied natural gas industry.
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On Friday, the country’s largest pipeline company came away with its first haul in the Canadian LNG game, agreeing to invest $1.5 billion and acquire a 30% stake in the Woodfibre LNG project near Squamish, British Columbia.
The $5.1 billion investment in the development comes at a key time with Woodfibre, a Vancouver-based subsidiary of Singapore’s Pacific Energy Corp., preparing to begin construction on the site next year.
The facility, Canada’s second LNG development off the Pacific coast, is expected to start operations in 2027 and supply customers in Asia.
“Woodfibre is ideally positioned to meet growing Asian demand,” Monaco said on an earnings call on Friday.
“We see a great opportunity here for Canada to materially increase LNG exports. The economic benefits are obvious, but also for Canada to play a leadership role in improving global energy security and reducing GHG emissions beyond our own borders.”
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For a decade, Canada has had lofty aspirations to become a major player in the global LNG industry, exporting supercooled natural gas to the world.
With abundant and cheap gas supplies in the huge Montney formation in British Columbia and Alberta, a competitive resource base was assured.
However, high-value energy infrastructure and major investors, along with secure customers, were also needed to make this happen.
The Shell-backed LNG Canada megaproject was given the green light in 2018 and is under construction. Other projects stalled, while the United States catapulted into becoming an LNG powerhouse.
However, Woodfibre’s smaller project has been making progress. In April, the company issued a notice for its main contractor to go ahead with work needed to begin construction of the main site next year.
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Now, you have a new partner on board.
“I hope it sends a really positive message about the future of LNG,” Woodfibre president Christine Kennedy said in an interview.
“If done right, we have an opportunity to provide a transition fuel for other parts of the world.”
The deal on Woodfibre LNG, a relatively small project that will produce 2.1m tonnes/year for export, comes as global LNG prices have soared.
Europe is expected to voluntarily cut its natural gas consumption by 15 percent this fall as it moves away from Russian supplies or risks being cut off.
A report this week from the US Energy Information Administration noted that the United States became the world’s largest exporter of LNG in the first half of the year.
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Shipments south of the border have expanded due to increased export capacity, growing global demand and rising prices. European LNG benchmark prices averaged nearly US$31 per million British thermal units in the first half of this year, while Asian spot prices averaged US$29.50.
The Woodfibre project is backed by a purchase agreement with BP Gas Marketing, which will take over about 70 percent of the project’s capacity.
Natural gas will move from the Montney region, through Enbridge’s existing pipeline system in British Columbia, to an expansion of Fortis’ Eagle Mountain pipeline, which extends to the development.
Monaco noted that the project is competitive with US Gulf Coast LNG facilities and provides a shorter shipping window to get the product to Asia.
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The Woodfibre project will use hydroelectric power, making it one of the lowest-emitting LNG export facilities in the world.
As part of the deal structure, Enbridge will receive a preferred equity interest in the project, which the company says will provide it with predictable future cash flow.
The announcement marks a change for Enbridge. It already supplies natural gas through its existing network to four operating LNG plants on the US Gulf Coast.
Now, you are about to become the owner of an LNG project.
“This is the first one we’ve entered, and it’s smaller in scale,” said Brian Johnson, vice president of Canadian gas transmission and midstream at Enbridge.
“This is an infrastructure project and the right business model that works, so we can also learn and gain experience.”
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It is important that Enbridge does not change its existing risk-reward profile for investors, but the deal removes commodity price risk through its preferred share structure and by having contracts in place with BP, analyst Matthew Weekes said. of iA Capital Markets.
“I don’t think it’s a change in strategy, but I would say it’s more of an extension or expansion of strategy,” Weekes said.
“We just see it as going a little further down the value chain, but ultimately it’s still infrastructure.”
That doesn’t mean it’s a risk-free venture, though, as capital costs on major power projects can rise during an era of red-hot inflation.
On Thursday, TC Energy said expected costs to build the 670-kilometre Coastal GasLink (CGL) pipeline, which will transport natural gas from northern British Columbia to the LNG Canada development near Kitimat, have increased by nearly 70 percent. cent to $11.2 billion.
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Industry analyst Ian Archer, associate director of S&P Global Commodity Insights, said the Woodfibre deal is “an affirmation of this project” and shows Enbridge’s interest in finding new markets for clients at a time when the demand is growing.
“We see partners that are looking for energy sources that are safe, stable, secure and have put a lot of interest in Canadian LNG as well as Gulf Coast projects,” Archer said.
“It is certainly an important milestone for Pacific (Energy) and provides another outlet for Canadian gas to reach global markets.”
Chris Varcoe is a columnist for the Calgary Herald.
