Topsy turvy world of energy

Between shovelling sessions the weekend before last, I was reading an article from the Trinidad and Tobago Guardian ...

Between shovelling sessions the weekend before last, I was reading an article from the Trinidad and Tobago Guardian which talked about how things had changed vis-a-vis the markets into which that country sold LNG.

Trinidad Tobago has been in the LNG game since 1999.

Energy minister Kevin Ramnarine said that in 2005 about 89 per cent of the country’s LNG exports went to the US.

At that time the price was averaging US$8.64 per million British Thermal Units MMBtu).

How much do they send to the States today? Just 19 per cent.

That’s because by last year the average price had collapsed to US$3.99 per MMBtu and as of last month had sunk even further to US$2.70.

Now their big markets are South America, Europe and Asia where prices last year averaged approximately US$13.50 per MMBtu.

That example of how quickly the natural resources world can change put me in mind of Methanex.

In 2006 it shut down its methanol plant here on the quite reasonable basis that with the high prices of natural gas in BC, it was losing money and that seemed unlikely to change.

Besides, it was in the throes of developing plants in Chile where it could take advantage of “stranded” – and therefore cheap – natural gas in South America.

It built four plants there each twice the size of Kitimat.

Now, although the plants were in Chile, about two-thirds of the gas they needed came from Argentina. But Methanex had contracts that assured the necessary supply.

Unfortunately for Methanex, Argentina tore up the contracts and shut off that supply to satisfy growing local demand – and the government’s need to get re-elected.

Which meant the company only had enough gas to run one of those significantly expensive plants.

Two weeks ago Methanex obviously decided it was time to start calling it quits in Chile, announcing it would relocate one of the shuttered Chilean plants to Lousiana – and speculation is that it will in fact move two.

Methanex made a smart decision in 2006 based on the evidence available at the time.

No-one saw the shale gas explosion coming and natural gas prices being slashed by three-quarters from the point they were at

when the company bid adieu to Kitimat.

And few would have predicted that Argentina would renege on its contracts.

That same volatility is reflected in the story so far of LNG and Kitimat.

In the mid to late 90s Pac-Rim planned to take advantage of cheap Canadian natural gas prices by building an export plant here.

That project died when the Asian flu – economic downturn – hit.

In May 2004 LNG was back on the table with Galveston of Calgary announcing it would build a plant.

But this time, owing to the sky-high natural gas prices here, it was to be an import facility, taking advantage of cheap stranded gas in place like the Sakhalin Islands off the coast of Russia.

And just four years later the price situation had again changed so much that Kitimat LNG was now to be an export facility.

So in just one decade we went from export to import to export.

But that’s the past.

This time the new order will be sustained for decades to come, won’t it?

We’ll take a look at that next week.

 

Malcolm Baxter

 

 

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