LNG window ‘not open forever’
CAPP says prompt project approvals needed to halt natural gas decline
Canada’s natural gas industry will continue to shrink unless liquefied natural gas export terminals are built, an outcome that requires prompt regulatory approvals, says the lobby group representing the largely Calgary- based oil and gas business.
In a report Wednesday, the Canadian Association of Petroleum Producers said Canadian gas production will decline steadily over the next decade as burgeoning production from U. S. shale gas fields moves into its traditional consumer markets in the American Midwest and Northeast, as well as in Central Canada.
“Proposed LNG projects require timely political and regulatory decisions because global LNG competition is fierce and involves many well- established international suppliers,” CAPP president and chief executive Tim McMillan warned in a news release.
“The window of opportunity for Canada’s LNG market will not stay open forever.”
The report arrives on the heels of a speech last week in Calgary by Betsy Spomer, president and chief executive of the Jordan Cove LNG project at Coos Bay, Ore., who said Canada’s reputation as a place to invest in LNG has fallen behind that of the U. S. because of labour cost and productivity fears and regulatory uncertainty.
CAPP pointed out that 10.4 Bcf/ d of western Canadian gas was exported to the U. S. in 2007, but that has fallen to about 7.4 Bcf/ d.
Greg Stringham, CAPP’s vicepresident of marketing and oilsands, said in an interview Canada’s regulatory situation is improving.
“We’ve seen the federal government give the 40- year permits for exports ( up from 25 years), which is very positive, we’ve seen the certainty that has come out of B. C. now on the taxation side of things, we do have a timeline that’s set on the regulatory process on the pipeline side of things,” he said.
“So it stacks up well there. The only one we’re really waiting for is the next approval step on the environmental impact assessment.”
He acknowledged, however, that American export projects have an advantage because many are being built on existing infrastructure or are converted import terminals, while Canada’s LNG projects are primarily greenfield endeavours.
British Columbia introduced legislation Monday that provides 25 years of tax stability guarantees in return for building and operating the $ 36- billion Pacific Northwest LNG export project, a joint venture backed by Malaysian state- owned energy giant Petronas, near Prince Rupert. The project has been conditionally green- lighted by its backers.
Without access to global LNG markets to stimulate production of Canada’s more- than- 100- year natural gas supply, production will decline steadily over the next 10 years, then remain flat at about 13 billion cubic feet a day until 2030, CAPP said Wednesday.
Stringham said that would make a bad situation worse for natural gas producers in Canada who are receiving prices now that don’t meet average full- cycle exploration and production costs because of the glut in the market.
Access to global LNG markets — a prospect requiring a “commitment to competitiveness” — would enable Canadian production to recover to current levels of 14.5 Bcf/ day by the end of this decade, CAPP stated. As LNG export facilities are developed, natural gas demand to fuel these plants could raise production to 17 Bcf/ day by 2030.
CAPP’s second scenario is based on the construction of five LNG export trains by 2023 — the Petronas project would have two trains — with each having capacity to export five million tonnes per year or 700 million cubic feet per day.
The CAPP report notes that world trade in LNG has grown from 8.5 Bcf/ d in 1994 to just over 32 Bcf/ d in 2014. Growth has stalled recently, it said, because of an economic slowdown in Europe, but is expected to ramp up again.
Stringham said there’s a window of opportunity for Canadian LNG until about 2023, but a flood of new supply from projects around the world arriving at about that time is expected to close the window for several years.
Meanwhile, in a report released Wednesday afternoon, the Canadian Energy Research Institute concluded an average West Coast LNG project in Canada or the U. S. could be built for a capital cost of $ 865 per tonne, making such projects competitive with others around the world.
It pointed out the number of liquefaction projects planned for the B. C. coast grew from six in January 2013 to 20 currently, but most will not be built.
The U. S. Energy information Administration has estimated world natural gas production will increase from just over 300 Bcf/ d in 2010 to 512 Bcf/ d in 2040. About 10 per cent of current production is sold via the LNG market.