Archives for May 15, 2019

Supplying New England remains company’s ‘goal and commitment’

The general manager of Canaport LNG says the end of natural gas production off Nova Scotia has done little to boost production at his Saint John import facility.

“We were hoping to see more business, to tell you the truth,” said Javiar Azagra. “We thought it was going to be more opportunities for us to bring more gas but actually it didn’t happen.”

After almost two decades, gas supplies have run out at the Nova Scotia gas fields at Cape Sable Island and Deep Panuke.

Production was stopped completely Jan. 1.

Corridor only producer left

That left Corridor Resources the only natural gas producer in the Maritimes, but according to consultant Todd MacDonald of Energy Atlantica, Corridor can supply less than one half of one per cent of the total natural gas demand in the region. 

The remainder is being met largely through suppliers in the U.S. and even Alberta, said MacDonald, with gas arriving here through the Maritimes and Northeast pipeline via Maine.

He expects prices in the region to remain relatively stable thanks to long-term contracts for transportation costs.

“If you think about your natural gas, it has two components, the actual cost of the molecule and then the cost to transport that molecule,” said MacDonald.

“And now the cost to transport that molecule has been fixed at a fixed price for the next 15 or 20 years. And that represents upwards of 75 percent of your total cost.”

Existing long-term contracts made by natural gas customers may be part of the reason Canaport LNG could pick up little new business when offshore Nova Scotia gas vanished from the marketplace.

The company imports gas in liquid form to reduce volume. It is then returned to gas form and marketed via pipeline through Repsol S.A. which, said Azagra, is willing to buy the product from other sources according to price. 

Repsol is also a parent company to Canaport LNG.

Azagra said 2019 turned out to be an average winter, with the company pushing gas into the U.S. “spot” market to meet peak demand during cold snaps.

“It’s always very depending on how hard is the winter,” he said. “At Canaport we fulfil the demand of the market of New England. That’s our goal and commitment.”

Competition increases

 And there was some stiff competition for that peak winter business over the past several months.

After a two-year break, a ship-based LNG regasification plant was back in operation this winter 20 kilometres off the Boston coast.

Its absence in 2018 helped give Canaport LNG a boost from bringing in just four ships in 2016 to seven ships last year. 

Each vessel, said Azagra, carries about 150,000 cubic metres of LNG, which converts to about 87 million cubic metres of natural gas.

Azagra expects little improvement in the volume of business over the next year or two.

He said carbon pricing and the tightening of environmental regulations surrounding marine fuels could send customers in search of cleaner fuels such as natural gas further down the road. 

North American markets partially rallied from the deep hit they endured to start the week amid the escalating U.S.-China trade war.

The S&P/TSX composite index closed up 91.12 points to 16,284.53.

In New York, the Dow Jones industrial average was up 207.06 points at 25,532.05. The S&P 500 index was up 22.54 points at 2,834.41, while the Nasdaq composite was up 87.47 points at 7,734.49.

The Canadian dollar traded at an average of 74.24 cents US compared with an average of 74.33 cents US on Monday.

The June crude contract was up 74 cents at US$61.78 per barrel and the June natural gas contract was up 3.8 cents at US$2.66 per mmBTU.

The June gold contract was down US$5.50 at US$1,296.30 an ounce and the July copper contract was up 0.6 of a cent at US$2.72 a pound.

Tilray Inc. expects Canada’s cannabis supply could become balanced within the next two years, while the cannabis producer ramps up its production and manufacturing footprint in the country.

CEO Brendan Kennedy said Tuesday that the company now believes Canada will reach a supply balance in the next 18 to 24 months. In mid-March, Kennedy had estimated the country would be in oversupply over the next 18 months.

The change comes as the industry continues to struggle at ramping up production in the current regulatory environment, he said during a conference call with investors after the company released its first-quarter results.

Tilray said it’s seeing increasingly high demand in the domestic market and reiterated the company’s announcement last week to invest US$32.6 million to increase its Canadian and manufacturing footprint by roughly 18,860 square metres across its three facilities in Leamington and London, Ont., and Nanaimo.

The company is proud of its most recent quarterly results despite these continued domestic supply constraints, he said.

“We are pleased with our first quarter results which include the first full quarter of adult use market sales,” said Kennedy.

Canada legalized recreational cannabis for adult use on Oct. 17.

The Nanaimo-based company, which keeps its books in U.S. dollars, saw its revenue grow 195.1 per cent to US$23 million for the first quarter ended March 31, compared with $7.8 million in the same quarter the previous year.

Tilray says that growth came from cannabis legalization last year in Canada, as well as additional sales from its acquisition of Manitoba Harvest that closed during the quarter and strong growth in medical markets abroad.

The average net selling price per gram decreased to $5.60 from $5.94 in the same quarter the previous year.

The company’s net loss was $30.3 million or 32 cents per share, compared with $5.2 million or seven cents per share for the first quarter of the previous year.

Chinese crop boycott means hard times for Canada’s massive canola industry

Toban Dyck picked the right crops this year — by accident.

Instead of seeding canola, the Winkler, Man., farmer is seeding wheat and soybeans. The pick was purely coincidental — he didn’t know when he bought his seed in the fall that a dispute with China would mean big problems for Canadian canola producers.

“Often these kinds of trade disruptions can last for years. I hope it’s not the case,” Dyck says.

China is the biggest buyer of Canadian canola, purchasing nearly 40 per cent of the crop grown here.

Now the country has effectively blocked that trade. The move is likely a response to Canada’s arrest of Huawei executive Meng Wanzhou. Her extradition process to the U.S. could take years, which has farmers worrying the canola blockade could last just as long.

“China’s a big giant player,” Dyck says, adding “China is a giant wild card.”

Canola is one of the biggest agricultural products in Canada, and if the spat with China lingers, the impact on the economy could be huge:

• Canada is the No. 1 producer and exporter of canola in the world.
• Canadian farmers grew 23 million acres of canola last year.
• The crop contributes more than $26 billion a year to the economy, according to Statistics Canada.

Then there are the jobs: the crop is responsible for employing 249,000 Canadians and $12.5 billion in wages, according to the Canadian Agri-Food Trade Alliance.

Already, the impact of the Chinese canola embargo is being felt here. This year farmers are planting 1.5 million fewer acres than they did in 2018, according to Jack Froese, a farmer and board member of the Manitoba Canola Growers.

That’s the equivalent to almost the entire land area of PEI being changed to another crop.

If this dispute drags past the fall, Froese says he expects there will be even less canola seeded next year.

“We’ll certainly be putting a lot less canola in, that’s for sure,” he says, noting that the price of canola has gone down $2 per bushel since last fall.

“At average yields, it’s break-even at best.”

U.S. tariffs

There’s also the added factor of trade tensions between China and the U.S. that could soon cause even more pain for Canada’s agricultural sector.

China largely stopped buying U.S. soybeans last year over a trade dispute, which has contributed to a depression of many crop markets, says Froese. As prices have dropped, the weak Canadian dollar has been an unexpected silver lining for farmers here, making Canadian produce more attractive to international buyers.

“Well, we in Canada are somewhat fortunate,” Froese says. “We’ve had the Canadian dollar at 75 cents and it’s kind of saved us. But the guys in the U.S. are eating into equity and have been for probably a year or two.”

But the U.S. and China are trying to negotiate a new trade deal that would cut the tariffs the nations have placed on each others’ goods, and that could negatively affect Canada, according to Sylvain Charlebois, food distribution and policy professor at Dalhousie University.

“Tariffs may drop between the two countries, which could make some commodities — American economy commodities — more attractive to China. Which means they could actually implement more embargoes against Canada, and I can see [products such as] lobster being affected,” he says.

Besides seafood, Charlebois says other markets could become targets too, such as Canadian beef sales to China.

Taking a hit

In the meantime, even though Dyck isn’t planting canola this year, it doesn’t mean China’s shift away from buying it isn’t affecting him. He’s still holding some of his canola harvest from last year.

Normally this would have been a smart move financially. If producers can hold their crop beyond harvest-time, the price they can fetch for it usually goes up as supply diminishes.

This year, however, holding onto part of the harvest is working against them.

Dyck says he has already taken a financial hit on the canola he was trying to save. “I could have secured contract for June-to-August pick-up of this canola for $13.25 per bushel.”

But now that China has backed off Canadian canola, he says the selling price is about $11.50.

It would not be unusual for farmers to have 100,000 bushels of grain in their bins, meaning the drop represents a $200,000 hit to a small business’ bottom line.