B.C. may miss out on LNG opportunity
Report says government is behind schedule
VANCOUVER — If B.C. does not act quickly and aggressively to enter the market to export liquefied natural gas overseas to Asia, it will lose out to its competitors, warns a University of Calgary report.
Those competitors include other new entrants to the LNG market such as the U.S. and the East African country of Mozambique.
If B.C. doesn’t have liquefied natural gas plants under construction by 2018, it will become increasingly harder to enter the market because contracts will have locked up the new demand for gas in Asia, said Michal Moore, director of energy and environmental policy at the public policy school.
Late-comers face potentially higher capital and financing costs and also the risk that current higher prices in Asia will fall off, he said.
The 86-page report — Risky Business: The Issue of Timing, Entry and Performance in the AsiaPacific LNG Market — notes that the British Columbia government is already behind schedule on its goal of having at least one terminal operational by 2015.
In contrast, Cheniere Energy on the U.S. Gulf Coast is expected to be producing LNG for export as early as next year, and will ramp up production through to 2017.
Exporting LNG from B.C. and Alberta is viewed as important because prices have been driven down by a glut of gas in the United States.
Supply has increased dramatically with the release of tight gas from the use of horizontal drilling and hydraulic fracturing, more commonly called fracking.
At the same time, demand is rising in Asia, where natural gas is four times as expensive as in North America.
It’s possible two LNG plants will be built in B.C., but the possibility of three plants is very small, said Moore at a news conference held in downtown Vancouver on Thursday.
Premier Christy Clark has underpinned her government’s economic plan on getting five LNG plants built in B.C., estimated to create 75,000 jobs and help feed a $100-billion prosperity fund over three decades.
“The market is large and it is growing but there are a lot of countries and companies lined up to provide adequate supply to meet that demand in the short term and in the long term. So, to imagine the market is infinitely large and infinitely growing, and it’s going to take all comers, is simply a mistake,” said Moore.
The prospect of LNG fuelling a $100-billion prosperity fund doesn’t look “very realistic” right now, he said.
Moore noted that companies wanting to operate in B.C. have other obstacles to overcome, including securing rights of way for the required pipelines and dealing with First Nations interests. While some First Nations have cited concerns over fracking, carbon emissions and air pollution, they have been much more open to the idea of LNG than Enbridge’s Northern Gateway oil pipeline. The report was also critical of the B.C. government’s plan to impose a new tax on LNG production plants.
The B.C. government has argued that even with the additional tax, B.C.’s cost structure is competitive with other jurisdictions such as the U.S. Gulf Coast and Australia.
But the report authors had a different opinion, saying that LNG was being singled out with a specialized tax in addition to corporate taxes and royalties on gas extraction already contributing to the province’s coffers. “If the British Columbia government is concerned that its citizens are not getting their fair share, that should be addressed in the royalty tax system not an LNG tax,” said School of Public Policy researcher Jennifer Winter, who has a doctorate in economics.
“It’s like levying a special tax on refineries or automakers, just singling out an industry, and that will make B.C. even less attractive to potential investors relative to other jurisdictions,” said Winter.
In a written statement, B.C. Natural Gas Development Minister Rich Coleman said Thursday he’s confident the province will succeed in developing a gas export industry.
“In a very short amount of time, we have made tremendous progress and I’m confident in how B.C. is preparing for this new industry,” he said.
“We’ve seen major, global companies show a strong commitment to B.C.’s LNG future, making large investments in our province. These companies know we offer a stable business environment to build successful export facilities.”
He was not available for further comment.
Although there are more than a dozen proposed LNG plants on the B.C. coast, none has announced a final investment decision.
Indonesia state-controlled Petronas, the major proponent behind the proposed $11-billion Northwest
LNG in Prince Rupert, is expected to be the first company to make a final investment decision, possibly before the end of the year.
Others such as Shell and BP have said a decision on their projects is farther off. Twice delayed, the B.C. government has promised Petronas it will have its LNG tax system hammered out by the fall, so the company can incorporate it into its investment decision.
So far, Clark has not shown any sign of concern about the pace of policy decisions and a lack of a green light on any of the LNG projects proposed for B.C.
After the announcement in May of a surprise $400-billion gas deal between China and Russia spurred calls for B.C. to act urgently, Clark shrugged off the concern.
The premier insisted there will be enough demand for many countries to supply gas to Asia.