Access to global LNG markets vital to the industry

Canada’s goal to become a global supplier of reliable, clean-burning natural gas is looking more like a dream than a reality as we watch another major international energy producer pack its bags and head home — taking billions of dollars in investment with it.

Industry was dealt a significant blow this week when Malaysian giant Petronas and its joint-venture partners announced they would not proceed with the $36-billion Pacific NorthWest LNG project on B.C.’s north coast. Although the consortium cited poor commodity prices and shifts in the energy industry as the primary reasons behind its decision, other factors such as regulatory uncertainty and an evolving political environment would have certainly played a role.

There are other LNG projects on the books — but this was the biggest project with a deep-pocketed international customer. It is a question of confidence to do business in Canada.

It is disappointing to see Canada lose a major opportunity that could have significant economic benefits to our country, not to mention bolster a new industry that would see our natural gas exported to the Asia-Pacific and help meet growing global energy demand.

The International Energy Agency forecasts energy demand in India and China will increase 49 and 46 per cent, respectively, by 2040 — and Canada is well-positioned to help meet that need based on the integrity of its oil and natural gas industry, its leading-edge technology and its world-leading efforts to minimize the environmental impact of development.

In the 2017 Global Energy Pulse, a first-of-its-kind global research survey conducted by Ipsos, Canada was the preferred choice for oil and natural gas imports globally among 32 respondents — ranking No. 1 among 11 top producing nations.

We are blessed with some of the largest oil and natural gas reserves in the world. Our production in 2016 was nearly 3.9 million barrels per day of oil and 15.2 billion cubic feet per day of natural gas — enough to meet the energy needs of all Canadians as well as other markets.

But despite all this promise and potential for prosperity, it continues to be difficult to bring this innovative new industry to fruition. The global market for LNG is highly competitive and it is essential for Canada to have a system that attracts capital so we can develop our natural resources, create jobs and grow the country’s economy and the prosperity of Canadians over the long term.

At present, the United States is essentially Canada’s only customer — responsible for nearly 99 per cent of our total oil exports and 100 per cent of our natural gas exports. At the same time, it has fast become our largest competitor. Thanks to the rise of shale gas production, the U.S. has seized the LNG opportunity and is already exporting to Asian markets.

The combined effect of a protracted regulatory process fraught with uncertainty, coupled with a current low commodity price environment, has culminated to make Canada’s natural gas and LNG industry less competitive. Government political and regulatory support are necessary to ensure projects such as PNW LNG and others are realized and will ultimately benefit all Canadians. Industry is prepared to work with government to make that happen.

Canada’s Greenfield projects — which do not have the benefit of any existing infrastructure — need timely political and regulatory decisions because the global LNG market is fiercely competitive and B.C.’s natural gas producers are already operating in a high-cost environment.

In the time that it has taken to review and make the investment decision for the Pacific NorthWest LNG project in Canada, the United States has built one and approved five LNG facilities.

At present, only one much smaller LNG export project, Woodfibre LNG on B.C.’s south coast, has been sanctioned by its investors. Meanwhile, proponents of other LNG ventures in Western Canada continue to evaluate their projects based on market conditions and our fiscal, policy and regulatory frameworks. It is critical we optimize those frameworks by taking into account current commodity prices and diverting environmental policies to ensure successful final investment decisions.

Without access to global LNG markets, western Canadian natural gas production will likely decline over the next 10 years and stay at lower levels of production than today, while other sources grow to meet growing demand.

In Canada, we have everything we need to lay the groundwork for a successful oil and natural gas future — balancing the energy needs of the world with the environmental needs of the planet. Our window of opportunity will not stay open forever. Now is the time to redouble our efforts to ensure Canadians can take our place in the world stage as forerunners of responsible energy supply.

Tim McMillan is president and CEO of the Canadian Association of Petroleum Producers