The largest distributor of natural gas in British Columbia is warning that plans to export gas to Asia could hurt consumers in the province by boosting prices – raising a red flag over an industrial shift that has widespread political and corporate support.
FortisBC carries 95 per cent of the gas to furnaces and factories in a province that has looked to exports of liquefied natural gas as an economic salve, generating tens of billions in investment, and far more in economic spinoffs and long-term government revenues.
It could also come with an important downside. In Australia, for example, natural gas prices for local users have soared in regions that are pursuing LNG export. Now, FortisBC is warning that gas prices in B.C. could also rise.
In a Nov. 16 letter to the National Energy Board, which is reviewing an export application by the Royal Dutch Shell PLC-backed LNG Canada project, FortisBC said such plans would underpin long-term development of B.C. gas resources, a positive.
But it also raises "the potential for negative price impacts and increased transportation costs that could arise." The letter adds: "There is currently considerable uncertainty how the proposed LNG export projects will impact the regional pricing of natural gas and the utilization of existing pipeline infrastructure in B.C., which could reduce liquidity and give rise to price disconnects at BC market hubs."
More than a half-dozen LNG export projects are planned for the B.C. coast. Two already have approval to export gas, as companies seek access to much higher overseas pricing. This week, commodity information provider Platts reported Asian LNG December prices at $13.53 (U.S.) per million British thermal units. North American gas traded for just under $4.
Other LNG-producing countries have chased the same potential for profits – and hurt domestic buyers in the process.
Earlier this year, Reuters documented prices in western Australia that had risen to nearly four times prices in some other parts of the country, as even major corporations such as Rio Tinto struggled to secure sufficient natural gas for their needs. Local buyers were feeling enough of a pinch that Chris Hartcher, Resources and Energy Minister for New South Wales, told reporters: "We are looking at a gas supply shortage."
Canada stands to see some similar market dynamics, said Peter Krenkel, president of NGX, the Calgary-based natural gas exchange. Foreign buyers "pay global prices," he said, adding: "Perhaps that could drive domestic prices higher and cause higher prices for consumers in B.C., and possibly elsewhere." He pointed out, however, that the NEB is unlikely to approve a project that sends away gas that is critical to Canadian needs.
FortisBC subsequently sent a letter to the NEB to "clarify" its comments, saying it does not oppose LNG. In an interview, vice-president of energy supply Cynthia Des Brisay said FortisBC fully supports LNG development, sees Canada as completely different from Australia and is concerned mostly that pipelines are built in such a way that "we maintain the flexibility in our access to gas supply."
Shell has partnered with Korea Gas Corp., Mitsubishi Corp. and PetroChina Co. Ltd. on an application to export 24 million tonnes a year of liquefied natural gas. The terminal costs have not been disclosed, but even initial plans for a 12-million-tonne facility are likely to cost more than $10-billion (Canadian). Shell argues that the project would not hurt Canada.
"The project would export a small percentage of total natural gas so it is unlikely to have any effect on natural gas prices in Canada," spokesman David Williams wrote in an e-mail.
Others back that argument, pointing out that North America is awash in so much natural gas that foreign exports are not likely to make a large price dent. Instead, those exports stand to unlock value for the country, said Jihad Traya, associate director, North American natural gas, for energy consulting firm IHS.
"If you're going to develop the resource, LNG is your export opportunity. It's not like it's going to take away resources from Canadian growth. Absolutely not," Mr. Traya said.
It's a view echoed by a B.C. government, which communicated its eagerness for LNG exports to the NEB in a letter that argues: "A stable natural gas industry provides benefits to the Province's citizens and communities through lasting employment, economic development and provincial revenues." A spokesperson, asked about the possible impact on prices for consumers, said: "The National Energy Board assessment for LNG Canada will look at the impact on natural gas prices and fiscal projections of the proposal."