How a German buyer could broker its B.C. LNG for fuel closer to home

An illustration of the Ksi Lisims LNG project in northern B.C.

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An initial agreement between the Ksi Lisims liquefied natural gas project to supply a German state-owned gas utility signed Wednesday was a first for the B.C. development, but likely won’t be the only one between it and a European customer.

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European customers would not likely take direct delivery of LNG, but use it to trade with Asian importers that have contracts from suppliers closer to Europe, an increasingly common arrangement and a sign of how interested countries are becoming in shoring up stable supplies.

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“What has opened up, what has changed for us, is maybe not the agreement itself, but the conditions that we’re operating in,” said Ksi Lisims spokesperson Rebecca Scott.

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Those conditions, starting with the war in Ukraine that first cut off natural gas supplies to Europe, and continuing with the U.S.-Israeli conflict with Iran that has shut off LNG from the Middle East, have “created this environment of a new emphasis on the need for energy security,” Scott added.

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Ksi Lisims and the utility Securing Energy For Europe signed an agreement that will see them negotiate terms for sales of up to one million tonnes per year of LNG from a yet-to-be-built terminal over a 20-year term, starting in the early 2030s.

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The important part for Securing Energy For Europe was an arrangement to take LNG shipments on a free-on-board basis, which gives the utility “the flexibility to deliver cargoes to any destination, thus enhancing the resilience and diversification of our portfolio,” said Securing Energy For Europe CEO Egbert Laege.

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That means Securing Energy For Europe will be free to trade to swap contracts for LNG with Asian importers that are closer to Ksi Lisims, and take supplies closer to Europe, according to energy analyst Alex Munton.

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Munton, director of global gas and LNG research for Rapidan Energy Group, said free-on-board status doesn’t need to be more complicated than saying, “You give me yours, and I’ll give you mine,” in an agreement.

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Securing Energy For Europe would be free to sell as much volume and for whatever length of time it wants to meet its needs, Munton said.

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LNG projects need long-term sales contracts with customers to secure the financing needed to build multi-billion-dollar production facilities, but Munton said it isn’t uncommon for customers to enter into swaps.

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The Indian utility firm GAIL Gas, for instance, has used swaps to trade LNG that it signed contracts to buy from U.S. suppliers that are “literally on the other side of the planet” from India.

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“As the market has evolved, they’ve been able to enter into these swap arrangements with other companies,” Munton said.

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He added that the deal with SEFE raises the profile of B.C. projects among other large European utility purchasers, which might be interested in striking similar deals.

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“It clearly demonstrates the sort of breadth of potential interest,” Munton said. “It’s not just an Asian project.”