Is B.C.’s LNG boat still afloat?

LNG Canada CEO says there is market and societal support for a liquefied natural gas industry
Canada hasn’t missed LNG boat: LNG Canada CEO Andy Calitz | Nelson Bennett

A global glut of liquefied natural gas that was expected to delay large LNG projects might have been overstated, according to Royal Dutch Shell , and prospects for an LNG industry in B.C. might not be over, after all, according to the CEO of LNG Canada.

But before companies like Shell – one of the key partners in the LNG Canada consortium – pull the trigger on a $40 billion commitment, it needs Victoria to rethink the way the industry would be taxed – something Michelle Mungall, the BC NDP’s new minister of energy, mines and petroleum resources, seems open to considering.

“We do need to address, on a broader scale, what’s going on in terms of the global marketplace and [the question]: is B.C. competitive in this global marketplace as it stands right now?” Mungall said.

“And that’s a very good question and one that we’re answering. I’ve directed my ministry to look into that and to begin to work with First Nations, local communities, as well as the industry.”

She made the comments September 22, following an address to the Greater Vancouver Board of Trade (GVBOT) by Andy Calitz, CEO of LNG Canada, whose partners include Shell, Mitsubishi (Nasdaq:MSBHF), PetroChina and Korea Gas Corp.

Following  recent announcements by Petronas and Nexen that they were pulling the plug on multibillion-dollar LNG projects, even LNG industry cheerleaders expressed concern that B.C. had “missed the boat.”

“I don’t believe that Canada has missed that boat,” Calitz told GVBOT members.

“I believe that B.C. will have an LNG industry, that there is societal support for an LNG industry from B.C., and … I believe specifically the LNG project can and will happen in B.C.,” Calitz later told Business in Vancouver.

Most oil and gas analysts have predicted that new supplies of LNG from Australia and, more recently, the U.S., would create an oversupply that would not balance out with growing demand until around 2024 or 2025.

That would mean that no final investment decisions on large LNG projects anywhere in the world would likely made before 2019.

But Calitz said LNG Canada will be submitting a “decision support package” to the four consortium partners in 2018, and some analysts are now adjusting their LNG windows.

Stream Asset Financial Management, which until recently had been pessimistic about new LNG projects, has recently become more bullish, thanks to a “massive surge” in natural gas demand. Stream Asset now believes the next demand window could open as early as 2020.

In a recent brief, it cites spot prices in Japan that indicate “the market is absorbing all new LNG supply.” Moreover, China announced this summer that it plans to increase natural gas to 10% of its total energy mix by 2020 and 15% by 2030.

“This is a game-changer to global natural gas markets and, by itself, can bring LNG to undersupply two to three years earlier than expected,” Stream Asset said in a brief last week.

Three weeks ago, Shell’s integrated gas and new energies director, Maarten Wetselaar, told Bloomberg that the LNG oversupply that was expected, especially from Australia, hasn’t materialized.

“Every LNG cargo that could technically be produced in this world has been produced and has found a well-paying customer,” he told Bloomberg. “So this market is in more balance than people perhaps perceive.”

That might explain why Calitz thinks B.C. still has a chance of developing an LNG industry. He reiterated B.C.’s two main advantages: an abundance of cheap natural gas and proximity to Asian markets.

Unlike Petronas’ Pacific NorthWest LNG project, the LNG Canada plant in Kitimat and associated pipeline are already permitted and have the support of local First Nations, notably the Haisla.

But Shell has large LNG projects proposed in almost every time zone, and the company has stated that it will invest only in projects with the best economics.

Calitz said the biggest hurdle for LNG Canada is tax competitiveness. He said B.C.’s carbon tax, which is being raised to $35 per tonne in April 2018 from $30 per tonne, is not his biggest concern.

“There should be a tax on carbon,” Calitz said. “It’s not the first increment of $5 per tonne that scares me, but somehow we need an indication from the government as to where that will go.

“We need the government of British Columbia specifically, but also the federal government, to take a last look at the fiscal tax competitiveness of Canada for an LNG project.”

One of analysts’ biggest concerns was a special 3.5% tax on LNG production that was introduced by the previous BC Liberal government. Australia is the only other major LNG-producing nation that has a similar tax. On the other hand, Australia no longer has a carbon tax.

Asked if LNG Canada wants B.C.’s LNG tax reviewed, Calitz suggested it does.

“That is a subject we are discussing with the government,” he said.

Because of its vocal opposition to Petronas’ Pacific NorthWest LNG project, the new NDP government has been viewed as being lukewarm at best, and hostile at worst, toward the LNG industry.

Mungall attempted to dispel that notion by saying PacificNorthWest LNG was a special case. It had chosen a site – Lelu Island – that was environmentally problematic.

“Our position has always been supportive of LNG, as long as the industry meets our four conditions,” Mungall said. “Conditions are not roadblocks; they are road maps.”

She added there is generally support for an LNG industry in B.C., including among First Nations.

“They want to see this go forward because they see the economic development opportunity for their community.”

Pitching B.C.’s ‘energy superpower’ potential

It is perhaps a good thing BC Green Party Leader Andrew Weaver had to skip a breakfast panel discussion on energy during last week’s Union of BC Municipalities (UBCM) convention.

He might not have liked what Michelle Mungall, the new minister of energy, mines and petroleum resources, had to say about the potential for natural gas produced in B.C. to lower carbon emissions elsewhere in the world through the production and export of liquefied natural gas (LNG).

“The opportunities that exist in this province in terms of what we can do to reduce carbon emissions and address climate action, not just here in the Pacific Northwest, but in Asia – our LNG does have the opportunity to reduce carbon emissions in other parts of the world,” she said September 27.

Weaver, whose support the BC NDP needs to govern, has opposed an LNG industry as both fanciful and an obstacle to B.C. meeting its climate change commitments.

And while the NDP opposed the $36 billion Petronas Pacific NorthWest LNG project in Prince Rupert, Mungall has been busy lately trying to address the perception that the NDP is against the industry as whole.

Blessed with abundant “clean” hydro power, renewable energy potential (including wind and geothermal power) and an ocean of natural gas, B.C. has the potential to become “an energy superpower,” delegates attending last week’s panel session on energy were told.

Dawson Creek Mayor Dale Bumstead suggested that within the Lower Mainland bubble, it’s not well understood just how significant B.C.’s unconventional natural gas resources are to the B.C. economy.

“Today in Canada over $30 billion is the capital investment in the natural gas liquids and the tight-oil sector. It’s double what’s being invested in the oilsands. It’s crazy how big it is. And people just don’t see it and don’t appreciate it.”

Bumstead added that in the last two years, companies like Encana Corp. (TSX:ECA) and Veresen Inc. (TSX:VSN) have spent $2.5 billion building three new natural gas processing plants in the Dawson Creek region.

“It’s more than 25% of the total Site C capital project of $8.8 billion, yet we hear nothing about it.”

Much of the LNG industry opposition comes from the fact that it would increase B.C.’s greenhouse gas emissions. But it would offset them elsewhere, if the LNG that is exported replaces coal power.

“Just think about if we can take two of those coal-fired plants off in China or Japan with our LNG,” Mungall said. “We are reducing greenhouse gas emissions by half. So the opportunities are tremendous, and we are just at the beginning of capturing all those opportunities.”

Natural gas is not B.C.’s only significant energy resource. Its vast water resources have allowed the development of large hydro and smaller run-of-river power plants.

Of the 31 run-of-river projects that Innergex Renewable Energy Inc. (TSX:INE) owns and operates in Canada, 18 are in B.C.

Colleen Giroux-Schmidt, senior director for governmental affairs for Innergex, said the key to developing more renewable energy projects in B.C. is working to develop new markets for B.C.’s clean energy.

“One of the things we all need to do together is help support the activities to open up those markets in Alberta, open up those markets south of the border, help move – through climate policy – increasing use of electricity to power our lives, whether it’s industrial use or electric vehicles,” she said. “And that’s going to create a space to add more assets into the grid and create those opportunities.”

Giroux-Schmidt added that there are markets not only for B.C. energy products themselves, but also for the products produced here with it – copper and aluminum, for example, which are being marketed as “low-carbon.”

Mungall said increasing B.C.’s electricity export potential would require beefing up transmission connections between provinces and states. She added that her government is in talks with other jurisdictions about how to go about that. 

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