It’s been a classic month for both pessimists and optimists who watch the world of LNG:
✖ Pessimist: Expansion of the Panama Canal lock system means a new route for big LNG carriers. It may cost $2 million in user-fees each way, but it will mean more U.S. LNG getting to Asian markets, and thus more damaging competition for BC LNG.
✔ Optimist: LNG from the US Gulf Coast is still 20-26 shipping days from potential Asian terminals. Australia’s huge Gorgon LNG project is 15-17 sailing days away. BC’s proposed LNG ports are closer: 10-16 days. At $40,000 - $70,000 a day to operate an LNG carrier, that means savings.
✖ There’s a huge glut of LNG on the world market, with new plants coming online, several more planned, and a picture of future demand for the fuel that looks shaky. As well as competition from the US and Russia, China is developing its own natural gas sector and is moving more firmly into renewable power.
✔ Any glut on the market is expected to end as early as 2020 (one expert forecast) or perhaps as late as 2024 (another expert forecast.) That timing could actually be not too bad for BC, in the end, as it takes a good five years to build and commission an LNG plant and nobody has started on one in BC yet. After that, the International Energy Agency expects global demand for energy to increase 37 per cent by 2040, and the Asian Development Bank predicts that Asia-Pacific nations will increase their energy demand by 67 per cent by 2035. BC could help meet the demand.
✖ But LNG Canada said this week it is delaying its plans for its LNG plant at Kitimat because of low Asian prices for LNG. Does this really mean that it’s abandoning the project?
✔ The joint-venture partners in LNG Canada have postponed the Final Investment Decision that we had expected at the end of this year. This makes sense, given what LNG Canada described as “global industry challenges, including capital constraints.” But LNG Canada continues its site-preparation and other work. As CEO Andy Calitz said: “It is important for the community to understand that the project has been delayed and has not been cancelled.” Don't write them off.
✖ Have you seen the price of LNG, though? Down to $4.50 for a million British Thermal Units when only two years ago it was $20. You can't develop LNG in BC at those prices.
✔ There has been some recent price-recovery, but the key point you miss is this: Those are spot-purchase prices, not long-term and medium-term contract prices. Nobody would build an LNG plant anywhere based on spot prices. Investors look at long-term demand for the product, and what they think contract prices will be 10 and 20 and 30 years down the road.
✖ You’ll never get another pipeline built, anyway. Look at the Federal Court of Appeal ruling on Northern Gateway and Aboriginal opposition to pipelines, and Prime Minister Trudeau’s opposition to tankers in our BC waters.
✔ But now you’re talking about oil, not gas, and oil pipelines, not gas pipelines that would bring natural gas to LNG plants in BC. Some 62 gas pipeline benefits agreements have been signed with 29 BC First Nations along four proposed gas pipeline projects. And look at how the Squamish First Nation recently approved FortisBC's pipeline expansion for Woodfibre LNG.
If there is one more point that both pessimists and optimists note, for their different reasons, it is this:
- The proposed Pacific NorthWest LNG plant in BC filed its proposal with the federal government in February 2013. The review process, we were then told, would take a year.
- As of 14 July 2016, it now is three years, four months and 25 days later—and we still do not have a federal decision.