GAIL wants 75% of Canadian LNG terminal

Vol 16, PW 4 (06 Sep 12) People & Policy

GAIL is talking to Spain’s Repsol to buy out its 75% stake in eastern Canada’s only LNG import terminal - Canaport LNG at St John in eastern New Brunswick province.

GAIL will soon begin due diligence on the 28m cm/d terminal, which it plans to convert to a LNG liquefaction and export facility, giving India strategic access to Canada’s abundant shale gas reserves. Commissioned in June 2009, Canaport has been shut in since May this year.

Unclear is why Repsol wants to quit but GAIL is welcoming the opportunity. Eastern Canada is believed to hold over 30-tcf recoverable shale gas reserves in Quebec, Newfoundland, Nova Scotia and New Brunswick.

Down the line, GAIL wants to invest in a Canadian upstream asset to produce gas to supply the proposed liquefaction facility. Another alternative is to sign long-term gas supply contracts with Canadian traders, linked to the US-based Henry Hub benchmark.

Liquefaction costs at the proposed Canaport facility are likely to work out to $3/mmbtu. Transporting LNG from eastern Canada to India is likely to cost around $5.5/mmbtu.

However, there’s a chance GAIL might have to look to western Canada for a sustainable gas supply source. This could mean an additional $3/mmbtu in pipeline transportation costs from west to east, raising the landed cost for GAIL in India to well over $11/mmbtu.

Yet Canadian LNG imports to India will still be cheaper than from the Middle East or Australia. If it comes through, this will be GAIL’s second major North American LNG investment.

In five years GAIL will begin receiving first LNG under a 20-year GSPA from proposed liquefaction facilities at the Cheniere-operated Sabine Pass terminal, signed in December 2011. Repsol (75%) shares Canaport with Canada’s Irving Oil (25%).