B.C. HAD LONG MISSED BOAT ON LNG PROJECTS
Lengthy delays let competitors fill niche market province had sought
Long before the Malaysians pulled the plug on their contribution to developing a liquefied natural gas industry in B.C., there were reasons to think the province was missing the window of opportunity.
The early warning bells coincided with Premier Christy Clark’s announcement of an “aggressive” goal of establishing three LNG export terminals by 2020 and they have been ringing ever since.
“We have a very short window,” said then-Shell Canada president Lorraine Mitchelmore in a comment reported on Sept. 19, 2011, the very day Clark launched her push. “I’m not sure they understand the sense of urgency in front of us.”
As far back as three years ago, Petronas, the Malaysian government owned senior partner in the consortium behind the Pacific North West LNG project, put the B.C. Liberals on notice they might walk rather than commit the necessary billions to develop the terminal.
“The landscape is now one of uncertainty, delay and short vision, ” the then Petronas CEO Shamsul Abbas announced via an interview with the Financial Times in late September 2014.
Among those uncertainties were construction costs, taxes and regulations, threats of legal action from First Nations and delayed approvals from provincial and federal regulators.
The entire country had to “buck up real fast to be a credible global LNG player if it wants to be taken seriously,” the Petronas chief continued. “Until investors cross the final investment line with an economically viable project, they remain just potential investors on paper.”
The B.C. Liberals dismissed his comments as bargaining talk by a CEO trying to cut a better deal. Sure enough, over the next couple of years, some of the outstanding concerns were resolved, albeit never to the point of a final investment decision.
One concern identified back then lingers to this day as an obstacle to attracting future investment on the multibillion-dollar scale contemplated by a typical LNG development.
The Petronas chief said B.C. needed to recognize that it was “already 40 years behind” rivals in the global LNG market, the main one being Australia.
Moreover it would now be competing against newcomers like the Americans, who (thanks to fracking) suddenly had surplus natural gas of their own for export purposes.
At about the same time as Clark committed B.C. to developing LNG for export, the then-governor of Louisiana Bobby Jindal launched his state into the quest as well.
The Louisianans came into the game with considerable advantages, including existing pipelines, brownfield (developed) sites, a trained workforce, and nothing like the First Nations obstacles or slow-motion environmental approval processes here in B.C.
Neither did Louisiana add any uncertainties to the process by developing a new regulatory or taxation regime for the industry, in contrast to B.C., which embarked on both from scratch.
B.C. did have some advantages in developing LNG, including relative proximity to Asia, a ready supply of the raw material that was rich in petroleum byproducts, and a lower ambient air temperature than rival sites in hot climates. (The lower the starting temperature, the less energy needed to chill the gas to the point of liquefaction.)
But the race was not even close. While we have been talking — and talking, and talking — the first Louisiana LNG terminal has been up and running for more than a year. The Americans have a half-dozen other plants in the works and others on the drawing board.
Some won’t go ahead. But B.C.’s apparent elimination from this round of development in the global industry — celebrated by our homegrown environmental purists — means less pressure and more opportunity for rival jurisdictions.
At which point it would be good to recall the best reason why the province set out to develop LNG, namely the opportunity to add value to the provincial resource and develop new customers overseas.
“We have essentially only one customer: the U.S.,” as the above-quoted Shell Canada chief said before her retirement at the end of last year. “We all know what happens when you have only one customer.”
The practical need to wean B.C. from excessive dependence on the U.S. was easy to overlook amid Christy Clark’s relentless guff about $100-billion prosperity funds and a debt-free B.C.
But her inability to close the deal on any major investment in LNG before leaving office also leaves the province where she found it, entirely dependent on selling natural gas at depressed prices into a glutted American market.
Plus now the Americans are in a position of being able to take our captive gas supply, liquefy it and sell it overseas themselves, if they choose to do so.
Inheriting all this is an NDP- Green administration that fought the Petronas deal every step of the way and where attitudes toward LNG range from on-the-fence doubtful to undisguised hostility.
But at least the leader, Premier John Horgan, knows the industry and its challenges. As a senior NDP staffer back in the 1990s, Horgan was involved in an effort, managed out of the energy ministry, to expand natural gas production in the province through a combination of regulatory change and financial incentives.
It worked, though the payoff didn’t happen until after the New Democrats were driven from office and replaced by the B.C. Liberals.
Still, if anyone in the current collection of green-New Democrats and green- Greens can see a way clear to someday get the LNG file back on track, it would have to be the premier himself.