Repsol mulls Canadian LNG export plant amid Ukraine crisis

ESTEBAN DUARTE and REBECCA PENTY

MADRID, Spain (Bloomberg) -- Repsol SA is considering building a $2-bn plant on Canada’s Atlantic coast to export natural gas, as Europe seeks to reduce its dependence on Russia for the fuel, a person familiar with the matter said.

Courtesy of Canaport LNG.

Spain’s biggest energy company would erect the facility at its existing Canaport LNG plant, which was designed to import LNG and is underused. Repsol may include the export project when updating its strategic plan next year, according to the person, who asked not to be identified discussing a private matter.

The crisis in Ukraine 4,000 miles away may help Repsol justify investing more in a disappointing project that has already undergone a $1.3 bn writedown. The Group of Seven nations agreed to find new sources of energy to prevent Russia from using its oil and gas reserves as a “political weapon,” German Economy and Energy Minister Sigmar Gabriel said May 6.

Russia under President Vladimir Putin provides about one-third of the European Union’s oil and gas needs, mainly via state-controlled Gazprom OAO and Rosneft OAO through pipelines that cross Ukraine.

In North America, the explosion of supplies from shale fields is turning the continent from an importer into an exporter. That’s prompting companies from Repsol to Dominion Resources Inc. to consider terminals for supplying Europe, where the fuel fetches more than in the U.S. Other suppliers want to ship from the U.S. Pacific or Gulf coasts to Asia.

A spokesman for Repsol in Madrid declined to comment, and spoke on condition he not be identified.

The Canaport LNG terminal in Saint John, in the province of New Brunswick, currently turns LNG received by tanker back into its gaseous form to meet North American demand for the heating and power-plant fuel. It moves the gas by pipeline into Canada and the larger U.S. Northeast market.

The facility has been underutilized after the rise in shale supplies prompting Repsol’s writedown in February 2013. Canaport was the only major asset that Royal Dutch Shell Plc didn’t buy when it agreed to acquire Repsol’s worldwide LNG assets for about $4.4 bn in the same month.

Repsol has yet to make a final decision on proceeding with the project, which would take about three years to build, the person said. The company filed a description of the project that’s not yet public to the Canadian Environmental Assessment Agency regulator, the person said.

The New Brunswick provincial government already gave Canaport an environmental approval to export LNG, according to a department website.

Repsol and its partner at Canaport LNG, Irving Oil Ltd., started receiving LNG at the facility in 2009, just as other import plants across the U.S. were being shut down or proposed as export terminals. Modern drilling technologies that allowed companies to unlock vast stores of gas in shale across the continent depressed domestic prices and reduced the need for imports.

LNG imports to Canaport over the first 11 months of last year were 67% lower than over the same period in 2010, according to data from Canada’s National Energy Board.

U.S. imports of Canadian gas by pipeline fell 22% in 2013 from five years earlier, according to data from the U.S. Energy Information Administration, as the largest consumer of Canadian gas meets more of its own demand.

Repsol’s Canaport conversion would be part of a wave of LNG export proposals being considered across North America. The project is among 17 potential export projects along Canada’s coasts that would together process at least 28 Bcf of gas a day, consultants Bentek Energy LLC estimated last month, predicting only a small fraction will be built by 2020.

President Barack Obama signaled that permits to export gas from the U.S. to Europe may be eased should the two economic blocs reach a free-trade agreement. The U.S. will probably become a substantial gas exporter toward the end of the decade, U.S. Energy Secretary Ernest Moniz said in a May 6 interview with Bloomberg News in Rome.

The province of New Brunswick is promoting shale exploration, according to an investor presentation. Canada’s third-smallest province by population has seen little development of the resource after producers shifted from exploring for gas in North America toward production of higher value oil and gas liquids.

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