B.C. LNG projects stranded amid global glut: study
Moody’s analyst believes Canada missed its opportunity to enter market
A new report suggests LNG prices will remain low well beyond 2020, further eroding Canada’s ambitions to become a prominent exporter of the supercooled gas in coming years.
Analysts at Moody’s Investor Service said that global LNG markets are likely to remain oversupplied well into the next decade as Asian demand for the gas weakens and new supplies begin entering the market.
The estimate runs counter to other analyst projections, which expect markets to balance in the next few years to create a “second wave” of opportunity for would-be LNG exporters in Canada.
The international LNG market has grown rapidly over the past few years as rising demand for the gas, particularly in Asian countries, kicked off a global race to meet future supply needs.
Canada was among the countries vying to enter the market, and around 20 LNG export facilities were proposed to be built along the B.C. coast, which would be fed by sizable natural gas fields in northern B.C. and Alberta.
In recent years substantial volumes of new supply started entering the market from facilities in Australia, the U.S. and elsewhere, satisfying demand for the gas.
Mihoko Manabe, a Moody’s analyst who contributed to the report, said Canada’s missed opportunity to enter the LNG market is partly a result of oversupply.
But she added the shortcoming is also a result of political fumbles and local environmental opposition to the projects at a time when companies were more open to make major investments in western Canadian LNG.
“In the last few years, I think the tide has turned against them — and a lot of it is beyond the cyclical ups and downs of commodity prices,” Manabe said.
Around 34 million tonnes per annum of LNG came online in 2016, the report said, with an additional 105 mtpa expected to be added over the next three years — roughly a quarter of the expected total LNG market in 2020.
The Moody’s analyst doubts demand for large-scale LNG facilities will return to its former levels, even after markets eventually rebalance.
Investors are more likely to flock toward smaller, more incremental developments at facilities that have already signed contracts with buyers.
“It’s a lot more economic to expand an existing plant,” she said.
Another threat is the growth of Floating Storage Gasification Units (FSGUs), as they are called in the industry, which offer much cheaper and more versatile supplies of LNG that can reach yetuntapped markets.
“That has allowed the market to diversify into areas, like the Middle East for example,” she said.
The report comes as Christy Clark’s BC Conservative Party heads into a provincial election in May, after promising to develop Canada’s LNG industry during the last election cycle.
A decision by the federal government last September to approve the $11.4 billion Pacific NorthWest LNG, proposed by a consortium led by Malaysia-based Petronas, was used by the party as evidence that it was gradually realizing those ambitions. However, many analysts say the consortium is likely to delay a final investment decision until market indications improve.
Analysts say the changing structure of global LNG markets will tighten competition along B.C.’s coast to build the first export facility.
“The projects that go forward will be the best of the best,” said Jihad Traya, an analyst with Solomon Associates in Calgary.
“Of all the 20-plus projects that were proposed, they were all on their own world-class. But within that pool there will still be significant attrition,” he said.
LNG markets often take years for demand and supply to balance out, according to Traya.
However, the falling costs of renewable energy sources like wind and solar will also pose a challenge to would-be exporters of LNG when markets near a more balanced state.
Of all the 20-plus projects that were proposed, they were all on their own world-class. But within that pool there will still be significant attrition.