PORTLAND — The backers of a proposed liquefied natural gas export terminal in Coos Bay, Ore., say they are slashing their projected spending by half and delaying the facility’s planned startup by a year as they wait for state and federal regulators to decide on key permits.
In its first quarter earnings call, Pembina Pipeline Corp. executives said they still feel the Jordan Cove LNG terminal and the 230-mile Pacific Connector pipeline are economically viable. But the company wants to limit its spending on the $10 billion project before receiving permits and making a “final investment decision” — industry parlance for the decision initiating financing and construction. The company plans to spend $50 million on the project this year, half its previous forecast.
Tasha Cadotte, a local spokeswoman for Pembina, said the company has made great progress with engineering, land acquisition and commercial negotiations with potential customers.
“We’re putting a pause on our non-regulatory workstreams,” she said. “We need to wait for state and federal regulators to catch up.”
The company says it expects a licensing decision from the Federal Energy Regulatory Commission in January and permits from the state of Oregon by the end of the year.
The slowdown comes at a time when LNG prices in Asia have plummeted and sit well below what would be required to make a project viable. The Coos Bay terminal wouldn’t come online until 2025, and market conditions are sure to change, likely for the better.
But Jordan Cove also faces competition from existing facilities in the Gulf of Mexico, as well as proposed LNG export projects in British Columbia that enjoy the same proximity and transit time advantages to Asia as the proposed Coos Bay project.
One local energy analyst, Robert McCullough, issued a report Friday concluding that Jordan Cove would have a significant cost disadvantage compared to its competitors – approximately 25 percent. “We also calculate the chance of Jordan Cove reaching operation is only one third.”
The report says basic rationale for an investment in an LNG export terminal is the difference between the price of the gas at the production site and delivered LNG at the destination market — in this case Asia. As nuclear plants have come back online in Japan following the Fukushima quake, McCullough says that differential has collapsed. He sees little reason to believe a large premium in Asian markets will persist.
“Keeping investor interest when prices have fallen this far (in Asia) is almost impossible,” McCullough said.
LNG Canada, located in Kittimat, British Columbia, received its final investment decision last year. McCullough says that project is bigger, closer to inexpensive Alberta and B.C. gas, and has better technology than what’s proposed by Jordan Cove.
Likewise, Cheniere Energy, located on the Gulf Coast, has big projects already in operation and planned expansions that dwarf Jordan Cove. That project’s economies of scale, the report suggests, are sufficient to offset any shipping cost advantage that Jordan Cove would have from the West Coast.
Jordan Cove will be fed by gas from both Canada and Colorado. But McCullough says the price for that gas will be set at the Malin hub in southern Oregon, and largely by demand in California, where gas trades at a premium to both the Gulf Coast and Canadian prices.
“It doesn’t matter if Coloradans want to sell their gas cheaply,” he said. “The people likely to set the price are Californians.”
Cadotte, of Jordan Cove, said the project has already negotiated non-binding commitments for more than the capacity of the Jordan Cove terminal. Those aren’t binding agreements, but she said, “in terms of LNG market outlook, the entire industry is moving to a gassier focus.”
Cadotte pointed to Shell’s 2019 LNG market outlook, which said a rebound in long-term LNG contracting in 2018 could revive investment in liquefaction projects. Based on current demand projections, Shell expects global LNG supplies to tighten in mid-2020s and growth in Asian demand to continue. Jordan Cove would come to market in 2025.
“The clear market focus for demand growth is located in the Asia Pacific market, specifically China, which aligns well with (Jordan Cove) LNG,” Cadotte said.
