About $400 billion in natural gas lies off Newfoundland’s coast. Can Canada tap it?

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Can Canada tap it?The province wants to launch a new LNG industry on the east coast, but faces major commercial and technical hurdlesLast updated 56 minutes ago You can save this article by registering for free here. Or sign-in if you have an account.Newfoundland and Labrador is trying to launch an entirely new liquefied natural gas export industry based on its offshore natural gas reserves. Photo by PEXELSNewfoundland and Labrador is trying to launch an entirely new liquefied natural gas export industry based on its offshore natural gas reserves, but while the province says it has identified enough gas to support major development, turning those resources into LNG exports could require overcoming major commercial and technical hurdles.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe Jeanne d’Arc Basin, an offshore region containing the province’s producing oil fields, holds an estimated 27.6 trillion cubic feet of recoverable natural gas, according to a resource assessment released by Energy and Mines Minister Lloyd Parrott last month. That gas would be worth about US$400 billion at current European benchmark natural gas prices, according to government estimates.“We are actively promoting our offshore opportunities to the world because we know that competition for investment is real and we have the resources right here in our province,” Parrott said at the announcement.To put the scale of the basin’s resource in perspective, LNG Canada Phase 1 in Kitimat, B.C., is the country’s first large-scale LNG export project and is licensed to export about 1.84 billion cubic feet per day.At that rate, the basin’s estimated gas could theoretically supply a project of similar size for more than 40 years, but there are several obstacles in the way of that ever happening, including that developing Newfoundland’s offshore gas industry will require much more costly subsea infrastructure than projects supplied by onshore gas fields in Western Canada.Provincial officials, however, say changing global energy markets have created an opportunity that did not exist a decade ago. The push also comes as Canada looks to diversify its trade and energy exports beyond the United States while Europe continues seeking new sources of natural gas.The province’s resource assessment is part of a broader effort to revive offshore natural gas development after exploration activity has slowed in recent years. The province is also developing a long-awaited offshore natural gas royalty regime and other incentives to encourage exploration and gas development, with the goal of establishing Newfoundland as a future LNG exporter that can serve European and other international markets.Unlike the country’s West Coast LNG projects, Newfoundland’s offshore gas is closer to Europe, raising the possibility of the country’s first Atlantic LNG export industry.But Tom Liles, senior vice-president of upstream research at Rystad Energy AS, said proximity to Europe alone will not determine whether companies invest in a Newfoundland LNG project. Instead, they would weigh it against other opportunities across their global portfolios.“If you’re looking at this from a company’s point of view, they have to look at this in terms of their entire global portfolio,” he said.Large international energy companies already hold assets in places such as Texas and Louisiana, where lower-cost gas and existing pipeline, processing and export infrastructure offer quicker returns. To secure investment, Newfoundland’s offshore proposals must compete directly against these faster, less expensive opportunities.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.“There is just so much cheap gas available in North America broadly,” Liles said. “It comes back to this portfolio approach question.”He said the province’s difficulty attracting investment is not new, pointing to offshore exploration licensing rounds that have generated little interest in recent years. The province offered dozens of offshore exploration parcels in both 2023 and 2024, but neither licensing round attracted a single bid.“Those have attracted limited bidding, if anything at all,” he said.One company hoping to capitalize on the opportunity in the Jeanne d’Arc Basin is Fermeuse Energy Ltd., which has proposed a roughly $12-billion project to transport offshore natural gas through a 380-kilometre subsea pipeline to a floating LNG export facility for shipment to Europe.The project would require roughly 9.7 trillion cubic feet of natural gas — more than one third of the basin’s estimated recoverable resources — making it one of the largest energy developments ever proposed in Newfoundland and Labrador.Fermeuse initially sought to source gas from existing offshore producers, including Exxon Mobil Corp. and Cenovus Inc. — two of the province’s major offshore oil producers — but chief executive Swapan Kataria said those efforts have not produced a supply agreement.“We’ve abandoned the idea of getting gas from these guys,” he said.Kataria said existing offshore operators have little incentive to commercialize associated natural gas — gas produced alongside oil — as along as oil remains significantly more profitable. Instead, much of the gas is re-injected into reservoirs to maintain pressure and maximize oil production.He said the future of his company project hinges on whether the province’s planned offshore natural gas royalty regime encourages companies to commercialize gas or on securing partnerships with companies developing new offshore discoveries.The province launched industry consultations on the royalty framework in June after discussing it for several years.“We are putting (the project) on hold right now because either the government finds a way to give us the gas or we enter into joint ventures with the companies that control the gas,” he said.Kataria said Fermeuse is now pursuing partnerships with exploration companies developing new offshore gas discoveries rather than relying on associated gas from existing oil fields.Since pitching the project last September, the company has secured a marine supply base site in Fermeuse, about 90 kilometres south of St. John’s, for its proposed LNG terminal, though it still requires regulatory and environmental approvals.The company also signed a non-binding memorandum of understanding with South Korea’s Hanwha Group in January, which Kataria said remains a partner.But Liles said establishing an offshore LNG export industry would require much more than those early milestones. Companies would still need to prove commercially viable offshore gas resources, build hundreds of kilometres of subsea pipeline and construct export infrastructure before a single cargo could be shipped.He also questioned whether existing offshore producers would have much incentive to redirect gas away from oil production.“Crude is still king,” he said.Kataria said those commercial challenges exist, but said global market conditions are shifting.He said Fermeuse has held discussions with potential buyers in the Netherlands, Poland, Italy and Spain, where demand for alternative sources of natural gas remains strong. Newfoundland’s location, he said, offers shipping advantages over U.S. Gulf Coast export terminals because of its shorter sailing distance to Europe.Liles said no single obstacle is likely to determine whether Newfoundland becomes an LNG exporter. Instead, he said the combined effect of gas supply, royalties, infrastructure requirements, financing and competition from lower-cost gas elsewhere leaves the province facing a difficult commercial case.Still, he’s not dismissing the opportunity entirely.“I’m not saying that it would never be viable, but you would probably need some really big exploration finds to push that forward,” he said.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.