PALMER: LOUISIANA HAS A LEG UP ON LNG

Sabine Pass: Louisiana facility was announced at the same time B.C. first promoted its LNG plans and will soon ship its first cargo

Somewhere in the Atlantic, a giant ocean-going tanker is approaching the Louisiana coast on a journey fraught with implications for the North American natural gas market as well as prospects for developing liquefied natural gas here in B.C.

The Energy Atlantic tanker is scheduled to take delivery early in the new year of the first test shipment from the multibillion-dollar Sabine Pass LNG plant and deepwater terminal, the Reuters news service reported recently.

The Sabine Pass facility, located near Louisiana’s border with Texas, is billed as the first modern LNG export terminal in the continental United States.

“When the terminal goes live, it will change the dynamics of the energy market in North America,” wrote Bloomberg news reporter Matthew Philips earlier this year. “The U.S. will be on its way to becoming a net exporter of natural gas.”

The revolutionary improvements in extracting natural gas from shale rock via horizontal drilling and fracking has produced a glut of supplies in North America — hence the B.C. Liberal drive to export the product in liquefied form to Asia.

But the commencement of operations in Louisiana underscores just how far behind B.C. has fallen in the race to get its product to market.

The Sabine Pass project was announced by Louisiana Gov. Bobby Jindal back in the summer of 2011, just a few weeks before B.C. Premier Christy Clark announced her determination to develop LNG here in B.C.

Both leaders vowed the first production lines would be “operational” by the end of 2015. But where Louisiana is crossing the finish line on schedule, B.C. is still waiting for the first would-be developer to commit to a final investment decision, never mind announce a target date to commence shipping LNG. Granted, as noted here earlier in the year, the Americans had some advantages. Sabine Pass was already developed as a terminal for importing LNG, which is not to make light of the effort and expense owner Cheniere Energy faced “turning around” the terminal for export.

Louisiana has existing pipelines, ready access to a trained workforce, tax incentives for development and job creation, communities that are used to and strongly supportive of the oil and gas industry, and nothing like the unresolved aboriginal title issues that hobble resource development in B.C.

Neither did Jindal’s administration hold things up, as the Clark government did, by insisting on developing a new LNG tax and regulatory regime while market conditions shifted in favour of buyers over producers.

But B.C. has some advantages as well. Proximity to the preferred markets in Asia. Natural gas deposits that are rich in profit-boosting subsidiary liquids. And the climate advantage cited recently by a director of LNG Canada, the $40-billion project proposed for a site at Kitimat.

“What’s so great about the climate?” he asked. “Well, remember the temperature of LNG — minus 162 degrees (Celsius) where it liquefies.

“So if you’re creating that LNG in Oman or Western Australia, where they do have LNG liquefaction plants that are up and running and the ambient average temperature is probably 35 degrees (C) … imagine taking your freezer outside and sticking it in the sun in Phoenix and what would happen to your ice cream. If you took the exact same plant and transplanted it from somewhere in the Middle East and put it into Kitimat, you can get an average of 20 per cent extra production just because of the climate you’re producing it in.”

Those and other considerations help explain why for all the head starts in rival jurisdictions, B.C. would appear to be still in the game to develop LNG over the longer term.

While the proposal from Malaysia government-owned Petronas for a terminal at a site near Port Edward is regarded as the most likely to proceed, LNG Canada is also a possibility.

The project is half-owned by Shell with junior partners in Korea, China and Japan, plus active involvement from the Haisla First Nation. Shell took billions of dollars worth of writeoffs on Arctic drilling and a project in the Alberta oilsands this year. But the company kept hopes alive for LNG Canada by announcing that the board of directors would make the call on a final investment decision in 2016.

In wishful anticipation of a thumbs up, local leaders and company representatives last week marked the commencement of “specific site preparation activities” for the Kitimat project. If the investment gets the go-ahead, construction would take five years, meaning shipments in 2021 at the earliest.

Granted global prices are lower than when B.C. caught the LNG bug. But as the developer behind the Sabine Pass project told reporters at an energy conference in Singapore earlier this year, these multibillion-dollar investments are driven by longer-term considerations.

“You don’t make a decision like this based on what’s happening in the next six months,” said Cheniere CEO Charif Souki. “You make a decision based on what you think is going to happen in the next 20 years.”

Once the first production train is operating at Sabine Pass, he’s planning to add six more at two plants — the other is in Corpus Christi, Texas — before the end of the decade. In addition, rival terminals are in various stages of construction throughout the region.

Which is to say that even if B.C. never manages to get its act together on LNG, the world won’t lack for the stuff as rival jurisdictions happily move to fill the demand.