Lacking customers and suppliers, Cape Breton natural gas project faces uncertain future

A natural gas terminal project in Point Tupper, N.S., that was originally supposed to come online in 2019 still doesn’t have a facility or any signed contracts with suppliers or customers, but the company behind the project is confident about its prospects.

Bear Head LNG hopes to import natural gas from Western Canada or the United States, cool it to a liquefied state at the plant near Port Hawkesbury and then ship it to European customers.

“We’re still very bullish on the Bear Head project,” said John Baguley, Bear Head LNG’s chief operating officer from Houston.

Baguley said the challenge for the company has been that customers are unwilling to commit until they know where the gas is coming from, and suppliers are unwilling to build a gas pipeline to Point Tupper until customers come on board.

“You’ve kind of got this catch-22,” he said.

“We’re just nudging this forward on both fronts and trying to advance them both in parallel so we can get to a point where we can solve these two issues simultaneously and Bear Head can go forward.”

UARB extension

Bear Head LNG recently asked the Nova Scotia Utility and Review Board for a three-year extension to its construction permit, which was set to expire on Dec. 31, 2019. The UARB granted the extension until Dec. 31, 2022, under the same conditions. The company was originally granted a construction permit in 2006, but got a previous extension in 2015.

Baguley said there is a lot of western Canadian gas to be marketed, and Bear Head believes it can offer that gas at a lower price by building in Cape Breton.

“We’re quite certain we can build the facility on the eastern coast of Canada much more cost effectively than an export facility can be built on the western coast of Canada,” he said.

However, not everyone is bullish on exporting gas to Europe.

‘A wildly optimistic project,’ says prof

“I think many people felt that Bear Head, perhaps, was a wildly optimistic project,” said Larry Hughes, who teaches energy systems analysis at Dalhousie University and is a founding fellow of the MacEachen Institute for Public Policy and Governance.

He believes a natural gas pipeline from Russia to Germany will likely be completed soon, despite American sanctions that were recently placed on that project. He suggests this could make Europeans less interested in importing gas from Canada.

As well, Hughes said European countries are pushing to meet their greenhouse gas emissions reductions targets under the Paris Agreement. That will lead those countries to want to move away from fossil fuels altogether.

“If there is a continued pushback against using carbon-based fuels … the Europeans may simply say, ‘Well, we will use Russian natural gas and slowly wind it down,'” he said.

Problems securing supply, lining up customers

In regulatory filings, Bear Head told the UARB the natural gas market has changed since its original permit was granted. The company said there is a “substantial imbalance” in supply and demand, and customers are deferring “long-term purchase commitments.”

The company has increased its marketing, even moving money from operations into marketing to try to lock down agreements.

Bear Head staff have also had to spend “significant time in Calgary and other locations” trying to secure the gas supply known as “feed stock.” However, the company said it’s optimistic it will be able to get enough gas during the three-year extension.

Plummeting prices

According to the United States Energy Information Administration, since 2012, the price of natural gas has averaged around $3 per million British thermal units, far lower than the almost $7 average in 2006 when the project was first approved.

This chart shows how the price of natural gas has changed in the last 26 years. (U.S. Energy Information Administration)

Hughes said the low prices are expected to continue into 2022, although he notes predictions can turn out wrong.

“In the end, your guess is as good as mine, but my betting would be Bear Head will have more difficulties ahead,” he said.

Baguley said there are a number of challenges to getting the project completed, but he is confident European customers will still be interested in Canadian natural gas.

‘Room for Canadian LNG in Europe,’ says proponent

“We think that there is still room for Canadian LNG in Europe as an alternate supply and an additional supply to what will come over through the Russian pipelines,” he said.

“Russian pipeline gas is going to be there, absolutely, and it’s a very cost-effective way to get gas into Europe, but the politics and the reliability come into play.”

In a separate project by a different company, Pieridae Energy Canada has proposed an LNG plant in Goldboro, N.S.

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