CANADA MUST CATCH NEXT LNG WAVE
Canada’s liquefied natural gas strategy is starting to resemble that 1993 Bill Murray movie, Groundhog Day.
The one where the lead character finds himself in an incessant loop — repeating the same day over and over again.
That same analogy can be applied to Canada’s plans for development of an LNG industry.
The annual CERAWeek energy conference here is always a useful measure of what’s happened during the past year. Or, in Canada’s case, what hasn’t happened, despite the federal government’s approval last summer of the Pacific NorthWest LNG project backed by Malaysia’s Petronas.
And it’s not like the company’s chief executive, Datuk Wan Zulkiflee Wan Ariffin, was going to show his hand at CERAWeek, either during his remarks or when talking to reporters, when it comes to making a final investment decision.
“We are doing a total review of the project, taking into account all the cost optimization options. We need to work on many fronts,” Wan Ariffin said following his formal remarks.
He added the company is producing 500 million cubic feet per day of natural gas in British Columbia, which should indicate their commitment to developing the resources they own.
Asked whether Petronas is satisfied with the fiscal terms B.C. Premier Christy Clark’s government has put in place with respect to LNG projects, Wan Ariffin said it would factor into the company’s final investment decision.
He would also not confirm if Petronas is seriously looking to move the docks to Ridley Island, building a marine terminal where Shell Canada holds development rights for its Prince Rupert LNG Project, which the company put on hold last year.
Wan Ariffin would only say Petronas is looking at all options.
Canada’s stalled LNG industry is a long way from where many had hoped it would be, with nothing under construction despite 20 projects having been proposed in recent years.
Instead, whatever natural gas molecules are shipped will be via an arrangement with Cheniere, the LNG exporter with shipping terminals in Louisiana.
Cheniere’s executive vicepresident and chief commercial officer, Anatol Feygin, confirmed Wednesday that natural gas from an unnamed shale producer in the Montney is being sent by pipe to Cheniere’s Sabine Pass terminal in Louisiana, liquefied and loaded for export.
If anyone ever doubted the DNA of engineers being one of solving problems, this would be a good example of how it can happen. But it also underscores the resident frustration regarding the lack of progress in getting LNG facilities built in British Columbia.
While Canada has not been mentioned as much as at past CERAWeek conferences, some of what has been said has been in the context of the size of the Montney resource and the fact it is very cost competitive.
When asked Wednesday if there was anything Ottawa was prepared to do to help get the stalled LNG industry re-started, federal Natural Resources Minister Jim Carr reiterated the Liberal government had approved the project and that it was up to the company to proceed.
“There are certain conditions. I understand Petronas is looking at those conditions now.
“I know that they have a significant interest and are sitting on considerable reserves. It will be in their interest to find ways to monetize those reserves,” said Carr. That’s true. And yet a slide presented Wednesday by Charif Souki, the CEO of Tellurian Investments who co-founded Cheniere and led that company until December 2015 showed which suppliers would be cost competitive at a natural gas price of $3 per million British Thermal Units.
Canada, alongside Australia, offshore Africa and Europe, were all considered out of the money.
There is no denying the LNG world is exceedingly complex. But, as Feygin pointed out, the prospects — given increasing demand — are very promising.
The challenge in developing LNG projects around the world remains tied to a number of factors, including the lack of willingness on the part of natural gas producers to commit to longterm contracts.
Another hurdle is the demands of potential customers seeking long-term contracts that tie natural gas prices to pricing hubs, such as Henry Hub in the U.S., rather than oil-linked pricing, which characterized the development of today’s market.
Also detrimental is the lack of progress in establishing an Asian hub for LNG pricing, something that would provide liquidity, transparency and allow for the development of a spot market — all of which would facilitate the financing of these often expensive projects.
There is also the added challenge of how to ensure LNG’s cost competitiveness with coal and renewables — paradoxically — because that is what it competes against in countries like China.
Finally, the current world of investment is increasingly characterized by “short-termism.” For myriad reasons, whether regulatory or market-related, companies — and not only in the resource sector — are not as willing to risk capital for long periods.
This lack of willingness to commit capital, particularly in the last two years, is setting the stage for supply shortages and price spikes.
There might be a surplus of LNG today, but that is expected to change by 2024, as the supply that has been brought on stream is sopped up by the growing demand.
There is still an opportunity for Canada to get in on the next wave of the global LNG trade.
It would be shameful — nay, embarrassing — if there isn’t a compelling Canadian LNG story being told here next year.