Energy market shift adjusts LNG time frames
Weak prices mean B.C. projects won’t be viable until ‘around 2020’
Outside the higherprofile news associated with Malaysian energy firm Petronas’ liquefied natural gas proposal for Prince Rupert and gloomy forecasts for the sector’s prospects in British Columbia, AltaGas Ltd. continues working away under the radar on its own proposals.
Calgary-based AltaGas anticipates it will be able to make a final investment decision before the end of the year on the relatively modest Douglas Channel LNG proposal at Kitimat. The bigger Triton project that AltaGas is involved in remains a bit on the back burner.
The choice isn’t necessarily the sign of an impending shakeout in B.C.’s still nascent LNG sector. Of 19 proposals put forward publicly in B.C., none has taken its name off the list so far.
“None of them have surprised me,” said Rich Coleman, Minister of Natural Gas Development, although a couple major proponents have pulled back.
United Kingdom-headquartered BG Group has suspended the decision process for its proposal at Prince Rupert, for example, but Coleman said the company is subject of a takeover by rival Royal Dutch Shell, which is the central player in the massive LNG Canada proposal at Kitimat.
As well, Australian firm Woodside Energy bought a 50 per cent stake in the Chevron-led Kitimat LNG, which puts a question over the Grassy Point LNG proposal at Prince Rupert that the company is also involved in, though it still holds an option on the other site.
The government is preparing for a rare summer sitting of the legislature, starting July 13, to deal with enabling legislation for a specific project-development agreement setting terms and taxation for the Petronas-led Pacific North West LNG proposal in Prince Rupert. Petronas offered a conditional investment decision to the $11-billion plant June 21.
Coleman said PNW LNG has long-term contracts with customers and is ready to proceed, “as long as it gets (its federal environmental certificate), and doesn’t get delayed too long.”
The proponent also remains in discussions with the Lax Kw’alaams First Nations, which rejected an initial agreement with PNW LNG over concerns about the project’s environmental impact at the plant site, which is sensitive salmon habitat in the Skeena River estuary near Prince Rupert.
For some though, changes in markets may mean changing timelines for projects.
“We’re still doing work on (Triton) in the background,” said Dan Woznow, AltaGas’ vice-president of energy exports. “It’s just not our main focus.”
Douglas Channel LNG, which AltaGas signed on to at the end of January as part of a bid to take it out of creditor protection, is simpler to put together, Woznow said. The project is a consortium that also involves Japanese energy firm Idemitsu Kosan Co., French utility firm EDFT Trading and Belgian LNG tanker owner Exmar.
The project is designed to use excess capacity in the existing Pacific Northern Gas pipeline to Kitimat with a barge-based liquefaction plant small enough to not require a full environmental assessment, Woznow said. Triton, on the other hand, would require its own pipeline.
Market dynamics have changed, Woznow said, prompting developers to “recheck their models.”
At the beginning of June, the International Energy Agency published a new five-year market outlook, which pushed expectations for development further into the future.
A couple of years ago, the province had hopes of seeing three LNG export plants in operation by 2020, but the IEA forecast estimated that for B.C., “no plant is expected to be operational over the time horizon of this report.”
The IEA report said demand for LNG didn’t increase as much as expected over the past two years and new plants that have recently come online are flooding the market with expectations global export capacity will increase 40 per cent by 2020. Since 2014, spot prices for LNG in Asia have fallen by half, the report said
In June, the Financial Post reported LNG was trading at $7.12 US per million British thermal units, lower than the $10 to $13 per BTU prices believed to be needed to make most LNG projects viable.
In that context, the IEA report estimated that “new LNG plants will struggle to get off the ground,” with prices that don’t support their massive capital costs.
“But these are long-term projects,” Woznow said. “There are always going to be ups and downs in the market,” and developers will keep an eye on the longer-term fundamentals of population growth and consequent energy demand.
“It’s just a matter of understanding that and where your project will fit in from a timeline perspective, (and) when the next big demand jump is going to happen,” he said.
Proponents of the Steelhead LNG proposal for Alberni Inlet on Vancouver Island are equally nonplussed by the short-term projections pointing to a long-term scenario of a shrinking market for Canadian gas in North America that will keep the prospects of exports attractive for investors.
“For British Columbia, I think the earliest a project could be in the market would probably be around 2020,” said Steelhead CEO Nigel Kuzemko, whose own proposal is just in the pre-application phase for a full review by the B.C. Environmental Assessment Agency.
Its promoters are still some years away from knowing whether they can make a decision, which Kuzemko said is better timing.
“The feedback we’re getting from the market is pretty clear, the next few years, for sure, are going to be tough, but after that, 2020 plus, you can see demand for energy from China growing significantly, from India, which is another major market, and all the other markets.”
With outside observers putting bets on how many, if any, of the projects go forward, proponents keep working on advancing proposals, said David Keane, president of the B.C. LNG Developers Alliance, an industry group representing seven of the biggest proposals.
“These were never going to be projects that were going to be constructed on a political timetable,” Keane said.
“When you’re looking at projects costing billions of dollars of investment, a lot of things have to come together simultaneously,”
It’s just a matter of understanding that and where your project will fit in from a timeline perspective, (and) when the nex tbig demand jump is going to happen.
DAN WOZNOW VP ENERGY EXPORTS, ALTAGAS