Oil Sands Truth: Shut Down the Tar Sands

Destination Dubai: Port Approved in Kitimat, sliding towards Gateway pipelines and more

The approval of the port in Gitimaat ["Kitimat"] needs to be rescinded. This port is completely useless if there is a shipping moratorium, and with a port approval it is politically much harder to imagine both the maintenance of the shipping ban (building a port is for use) and to prevent the construction of the Enbridge Gateway Pipeline. The development of this shipping lane may have many uses: Gas from all over BC's north, including coal bed methane [CBM], but more importantly the oil from the tarsands, and the kerosene-like "diluent" imports from Russia are set to be shipped (oil out, diluent in) from the Pacific Ocean to Edmonton and surrounding tar sands operations.

If this port is built, it will take a lot more than a lawsuit from the Carrier-Sekani Tribal Council to block any possible massive 1200 km long, two way pipeline project tearing up land into the northern Prairies.


Destination Dubai
Emirate welcomes Canadian LNG project.
Andrea W. Lorenz

In the liquefied natural gas world—just as in the real estate business—the mantra should be “location, location, location.” Galveston LNG’s godfathers have known that ever since they named their company after a Texas port city in order to throw their competitors off the scent of their intended site for a regasification terminal. It was Kitimat on British Columbia’s sparsely populated northern coast where they knew they had a good shot at approval. They did not name their subsidiary Kitimat LNG until they had their permits in hand.

Now the former Duke Energy executives have set their sights on the navel of the LNG universe: Dubai. It is here that their subsidiary LNG Impel plans to build a US$1-billion storage facility where tankers could on and offload in the deepwater port year-round. The advantage of this site is that it lies at a point equidistant from Europe and Asia.

Thomas Dawson, LNG Impel’s president, is a former natural gas trader who lost his job when Duke Energy’s gas marketing subsidiary imploded following the Enron scandal. With his boyish enthusiasm, Dawson reminds one more of a Little League coach than an ego-driven executive with projects worth billions of dollars under his charge. He draws a triangle with Dubai at its apex and Europe and Asia at each of the other two points. “It takes 14 days to sail to Europe or to Asia. Just like the old spice trade, Dubai sits at the crossroads.”

The first of its kind in the world, the project will have a storage capacity of up to 65 billion cubic feet and will allow customers to store, trade, and manage their liquefied gas supplies in stadium-sized tanks. Among its offerings will be customized blending and trading services such as financial derivatives. The location has the added advantage of being in a free-trade zone where it will receive a 50-year guaranteed tax holiday.

A joint venture between the Dubai Multi Commodities Centre (DMCC) and LNG Impel, the project will be located in the Emirate’s Techno Park. DMCC is an equity-providing owner with a 10 per cent stake. For its part, Impel will own between 20 and 30 per cent and customers will have the right to buy equity. The partners reached the agreement in May 2006 and plan to take their company public.

The fact that the company will have geographic arbitrage between Europe and Asia is a significant selling point. “You can swing cargoes either way,” says Dawson. Gas utilization varies depending upon the season and the weather, and LNG exporters like the ability to get their commodity to the region that needs it when it needs it. For the biggest suppliers, Qatar, Oman, Abu Dhabi, Iran, Kuwait, and Yemen, it takes only one-and-a-half days to reach Dubai by tanker. From Australia, Indonesia, Malaysia, Egypt, and Algeria it takes 10 days or less.

For a natural gas trader, the Impel-DMCC joint venture is a dream project because it has the potential to set precedents. “The Dubai government wants to create a futures contract for LNG,” says Dawson. “The storage hub would be a physical settlement point—like the Henry Hub in Louisiana.” In other words, even though only about two or three per cent of the gas that is traded ever actually goes to physical delivery at that site, it is a point where a price is set.

In November, the project’s managers held an open season for capacity which netted them five customers, allowing Impel to plan on building 11 storage tanks with a capacity of 200,000 cubic metres each. No regasification service will be provided.

“The LNG comes in on tankers and goes out on tankers,” explains Dawson. “It’s a trading asset.” For example, “if Nigeria wants to sell to Japan, the best way is to take a summer cargo, store it in Dubai, and sell it in the wintertime.”

Currently, only about 12 per cent of LNG is sold on the spot market, while the rest is sold on long-term (two-decade) contracts. The spot market volume is increasing, however, and is predicted to reach 20 per cent in the near future.

LNG project managers have one major challenge: securing long-term contracts with customers they can trust. In a previous interview with Oilweek, Kitimat LNG’s vice-president for supply marketing, Ilene Schmaltz, said that in the past five years, the LNG market went from a buyers’ market to a sellers’ market putting producers in the driver’s seat when it comes to negotiating. “It went from an oversupply to a tightening of
supply. There’s lots of new terminals around the world looking for supply.”

Dawson concurs. “There is so much excess regas capacity, you always know there’s an outlet. Now you can go to the Gulf Coast and get the Henry Hub price.” This explains why he and his colleagues spend much of their time overseas meeting and wooing potential customers. The key to negotiating 20-year contracts, Schmaltz said, is “trusting the party you’re dealing with. It is about getting to know each other.”

This also explains why LNG Impel’s website can be read in eight languages: English, Japanese, Dutch, Arabic, French, Russian, Indonesian, and Malaysian.

What is Impel’s current status? “We’re still negotiating with customers,” says Dawson. “Hopefully by June we’ll get everything papered up.”

Attracting customers who are looking at a global cornucopia of projects makes the idea of securing one’s own source of natural gas compelling. In Impel’s case, that source may be one of the most remote corners of the world, Papua New Guinea. Most of the onshore gas Impel is looking at is associated and is currently being flared. The company is discussing a partnership to develop the gas with the Australian company LNG Ltd.

As for Dubai, the Emirate’s government welcomed Dawson and his team with a warmth and encouragement he says he could have found nowhere else. “It is the can-do place in the world,” says Dawson. “It’s the only place where the government has been pushing us.”

“We weren’t the first guys to come up with the idea,” he admits. But his team’s background and expertise and the fact that they took the time to build good relationships with the individuals who count in Emirati society meant that the Impel project has received Dubai’s full backing.

“The project is a signal achievement for DMCC’s objective to make Dubai the energy hub of the Middle East,” says Ahmed bin Sulayem, DMCC’s chief operating officer, “and it is in keeping with our key role as a promoter of commodity trade and its requisite infrastructure.”

Dawson believes Dubai is at the same historic launching point that other great trading nations were when they began sending their ships across oceans in search of distant treasure. Its leaders encourage business by providing tax advantages; they do not stifle projects under the weight of rules and regulations; and they quickly evaluate projects with the most promise, giving them every incentive to move ahead promptly. “I equate them to the U.S. in the 1880s. They’re in that phase where growth is the priority, and they know they only have a certain amount of lead time [over their competitors]. Their decision making is so much more streamlined.”

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