B.C. must act fast to profit from LNG exports

Not long ago, many Canadians believed that our natural-gas industry was in permanent decline. The tide, however, is turning. B.C. is well-positioned to become the centre of Canada’s natural-gas industry — but time is of the essence and B.C. needs to act now to take advantage of this opportunity.

The shale-gas revolution in the U.S. has fundamentally transformed the North American market. The long cold winter in North America caused a temporary spike in prices in recent months, but the relentless rise of U.S. shale-gas production drove gas prices to multi-year lows as recently as last summer. As a result, Canadian production fell by nearly 20 per cent between 2006 and 2013. With the U.S. expected to become a net exporter as soon as 2020, Canada’s only current export market could increasingly spurn our production.

Despite this real challenge, the Conference Board of Canada expects Canadian gas production to begin rising again by the end of

Michael Burt

this decade. The development of the massive Montney and Horn River formations in northeast B.C. and liquefied natural-gas (LNG) facilities on the B.C. coast offer an unprecedented opportunity for the Canadian industry to grow beyond North America to supply new markets in Asia at much higher world prices.

The Asia-Pacific region is the largest and fastest-growing LNG market in the world — this is the time to take advantage of it. In 2012, Asia-Pacific imports of LNG averaged 22 billion cubic feet per day (bcf/d), representing 69 per cent of the global

“British Columbia is well-positioned to become the centre of Canada’s natural-gas industry — but time is of the essence and B.C. needs to act now to take advantage of this opportunity.”

trade. And Asian LNG imports are expected to rise to 45 bcf/d by 2025.

The price difference between North America and Asia makes it an attractive market for Canadian producers. Benchmark prices for natural gas in Asia can be three to five times what they are in North America. North American prices averaged $3.71 US per million British thermal units (Btu) in 2013 versus $16.45 US per million Btu in South Korea and Japan. Shipping and liquefaction costs would consume part of this differential, but prices in Asia still would garner a significant premium.

There are multiple LNG export projects proposed for the B.C. coast that are at varying stages of development and approval. Although we do not expect all of these projects to proceed, we could see significant LNG exports from the region as soon as 2018. Canada’s LNG export capacity could reach 6.5 bcf/d within 10 years, placing us among the top five LNG producers in the world.

To take full advantage of the current environment, however, B.C. needs to quickly work out the regulatory and pricing risks associated with LNG export terminals. That will help clear the way for the necessary investments.

The need for speed is driven by the fact that Canada is not the only country with its eye on Asia-Pacific markets. Numerous other producers — including those in the U.S. — are seeking to serve the same markets. B.C. would do well to jump-start its plans. If the Canadian projects are slow to be developed, they might never be realized and Canada could be left out, as other competitors establish themselves first.

The global gas market is undergoing great change, and Canada and B.C., in particular, are uniquely positioned to benefit. Unconventional supplies have transformed the North American market to Canada’s detriment. Global markets now have the potential to transform Canada’s industry for the better. However, if the potential of B.C.’s shalegas fields is to be realized, industry needs to be able to make significant investments very soon.

Michael Burt is director, industrial economic trends, at the Conference Board of Canada.