The dreams are big: Billions of cubic feet, billions of dollars and billions of people to serve. Add it up and it equals seven liquefied natural gas (LNG) export facilities in various stages of development on the west coast of British Columbia. Chances are good that at least a couple of these proposed megaprojects will see daylight before the end of the decade. Let's hope so, because we've seen similar dreams evaporate like a litre of LNG.
Tapping into Asian markets with tankers laden with LNG is the topic du jour in Canadian energy circles. It seems like a novel idea. We sell many other natural resources like wood, coal, uranium and agricultural products to the rest of the world, so why not offer our abundant energy resources too? Besides, hawking a thousand cubic feet for $2.15 (at AECO Hub), means that Canada is effectively giving away 5.5 Bcf/d of natural gas to the U.S. for free, realizing little-to-no profit, taxes or royalties. So building infrastructure to serve large markets like Japan, South Korea and China, where top dollar can be earned, is just exercising good business sense.
But selling our natural gas beyond the American border is hardly original thinking. The ideas driving current projects like Kitimat LNG (Apache, EOG, EnCana) and LNG Canada (Shell) have been around for 35 years.
In the late 1970s, Canada's Dome Petroleum and Nissho Iwai Corporation, Japan's largest LNG trader at the time, tentatively entered into a 20-year supply deal. New pipeline and facility infrastructure were proposed near Prince Rupert, B.C. Initial send-out volume was expected to be about 0.5 Bcf per day. The timing was ideal: Following the 1970s oil price shocks, Japan implemented aggressive policies to cut oil consumption and increase the use of natural gas in their energy systems.
An even more-audacious plan for to get Canadian gas to global markets was launched a couple of years earlier by the Alberta Gas Trunk Line Company. Its 1976 annual report called for "a liquefied natural gas pilot project in the Arctic Islands which involves the drilling of off shore under-ice wells, pipeline systems to an LNG plant." The company's charismatic president and CEO Bob Blair had the dream to see the "transport of the liquefied gas by tanker to domestic or export markets."
The onset of poor economics and regulatory friction in the mid-1980s scuttled these and other infrastructure projects that would have given Canada a much-needed toehold in global markets.
The attached table shows the list of grand LNG projects that are at various stages of development on the west coast of British Columbia. Some, like Kitimat LNG, have bulldozers on the ground. Others, like ExxonMobil, have only disclosed vague intent.
To deliver western Canadian natural gas to coastal LNG terminals, two pipeline projects have been announced: The Spectra-BG Natural Gas Transportation System and TransCanada's Coastal GasLink. Both are driving toward completion by the end of the decade. Cumulatively, almost 6 Bcf/d of gas could be carried to the coast if these pipes are approved and built. For a sense of scale, Canada's exports to the U.S are 5.5 Bcf/d, down from a peak of almost 10 Bcf/d in 2005.
Like the 1970s, dreamy economics are presenting themselves again. Japan is once more looking to expand its use of natural gas, this time at the expense of nuclear power. China necessarily needs more clean-burning gas to substitute for coal. As such, Asian prices have hit $16 per MMBtu, eight times what producers are realizing on this side of the Pacific. Such a massive arbitrage gives all players in the natural gas supply chain plenty of incentive to build a delivery system across the Pacific as soon as possible.
Today's regulatory environment for building Canadian hydrocarbon infrastructure is at least as contentious as it was in the 1970s and 80s, although natural gas is under far less political, aboriginal and environmental scrutiny than oil and bitumen. It's unlikely there is room for all projects in the attached table to reach completion. Physical access, regulatory rationing and availability of labour and services are among the many limiting factors. Consequently, some projects are likely to consolidate, while others evaporate. Like in any budding business, the first to navigate all the hurdles and get their product to market will have a considerable competitive advantage. And that's good incentive to dream bigger and faster.
LNG exports are now a necessity for the future of Canada's natural gas industry. After 35 years of dreaming, 3 to 4 Bcf/d of gas is very likely to be weighing anchor before 2020.
Peter Tertzakian