London, 20 August (Argus) — The planned export of LNG from Canada's Pacific coast to east Asia will be commercially viable and economically advantageous on a local scale, according to a recently released analysis by the Canadian Economic Research Institute (CERI).

The widely analysed arbitrage principle, whereby exporters take advantage of elevated price differentials between natural gas prices in North America and east Asia, will remain the key mechanism by which exporters generate efficiency under the proposed system. “East Asia, especially Japan, stands out as an ideal market in light of depressed continental prices. Furthermore, the demand in Asia for natural gas has been outpacing supply which has further increased prices,” the study said.

And the high fixed capital costs associated with building LNG infrastructure, as well as operating costs, are not likely to outweigh the commercial benefits, according to the study. “Producers can expect to get a higher netback price for selling LNG in Asia than in North America even if liquefaction plants are capital intensive,” it said.

The CERI study stresses the wider economic benefits that it says will accrue from the construction of export infrastructure on Canada's west coast.

“The majority of the economic impacts from upstream activity, pipeline construction and operation, and the Kitimat LNG terminal lie within British Columbia because this is where all the development is located. Alberta, Ontario and Quebec will also receive economic benefits owing to their manufacturing base as well as, in the case of Alberta, their proximity to British Columbia,” the study said.

The country's National Energy Board (NEB) has already approved two LNG export licence applications, for a combined total of about 12mn t/yr. Both projects are to be located near Kitimat.

And at the end of July, Shell filed an application with the NEB to permit exports of 24mn t/yr of LNG, also from a site near Kitimat, involving the participation of several east Asian companies including South Korea's Kogas, Japan's Mitsubishi and China's state-controlled PetroChina.

Insofar as it argues strongly in favour of the overall commercial viability of North American LNG exports to northeast Asian markets, the CERI analysis conflicts with an academic study released last week by the Houston-based Rice University's Baker Institute for Public Policy, although the latter focused more on exports from the US.

That report suggests that developers and politicians have overstated the economic rationale for US LNG exports and that such trade is unlikely to be considerable or profitable in the long run. Author Kenneth Medlock concluded in the study that volumes of natural gas liquefied and exported from the US will not be large over a longer timeframe and so the impact on US domestic prices will not be significant.

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