British Columbia playing catch-up with its LNG plans

Share

British Columbia is playing catch-up with Australia and the United States in the race to export liquefied natural gas, but the province believes its tax and regulatory regime will be competitive against its two main rivals.

The B.C. government commissioned Ernst & Young to see how the province stacks up against Australia and five states – Louisiana, Texas, Georgia, Oregon and Alaska. The EY report said that, on the low-end scenario for LNG export activity based on a hypothetical example of five plants, B.C. is essentially the same as Australia for collecting projected taxes and royalties over a 20-year period (roughly $160-billion in real 2012 dollars).

But the B.C. government argues that on the high-end estimate for comparing the tax and royalty frameworks, B.C. is lower than Australia, at roughly $280-billion versus Australia at $320-billion.

There are also other factors that go into companies' decisions on whether to forge ahead with LNG export terminals. Shipping distances, pipeline costs, the availability of natural gas and the status of consultations with First Nations are also important to keep in mind.

"It's a huge challenge to figure out a way to make these LNG projects competitive," says Byron Beswick, senior manager in EY's oil and gas practice in Calgary.

The soaring costs of Australian LNG projects are providing an opening for British Columbia's nascent industry to capture market share, according to analysts at RBC Dominion Securities Inc.

Speed to market is a key consideration, and while Australia boasts a shorter route, Canada's shipping lanes to Asia are more direct than Australia's.

With at least 14 B.C. LNG projects on the drawing board and likely only room for three export terminals by 2020, there will be pressure for the players to somehow combine their plans. Some proponents will be forced to drop out.

Canada could foster a more collaborative industry among various competitors, something Qatar was able to do when the pace of development drove costs too high, says Thomas Valentine, an international oil and gas lawyer with Norton Rose Fulbright's Calgary office.

Canada, unlike promising LNG projects developing in East Africa, has a stable regulatory and legal system, as well as local oil and gas expertise, but Mr. Valentine says investors may look elsewhere if Canadian policy makers don't start making decisions faster.

"What happens in Australia really does matter to what's happening in Canada," Mr. Valentine says. "If the Canadian projects don't really get engaged quickly, they could be left flat-footed."

British Columbia's closet rival is Oregon, where there are two projects in the running to export LNG, with both relying heavily on natural gas supplies that originate in Western Canada. The U.S. Department of Energy has approved the LNG export licence application filed by one of the projects, Jordan Cove Energy Project LP.

Cheniere Energy Inc.'s Sabine Pass LNG project in Louisiana is the only LNG export project under construction so far in North America. There are nearly 30 LNG projects planned in the United States, but realistically, a half-dozen of them stand the best chance of getting built over the next five or six years.