How will the race for Canadian liquefied natural gas exports shape up in 2014? We look to racetracks and the high-tech industry for a glimpse of what's to come – or at least what's needed.
It's a real horse race now. Fourteen thoroughbreds are jockeying for position. But this marathon of corporate equestrians is peculiar: Fourteen horses are on 14 different tracks. Every track seems to have different rules and payouts. And the confused local crowd is anxious, not knowing which track to watch, let alone which horse to bet on.
That's how it looks right now in the race to export LNG off the coast of British Columbia. Competition is a good thing, but there are too many contestants. Rules are not posted; clarity is lacking in policies governing uniform fiscal terms, safety protocols, environmental standards and First Nations deals. And to complicate it all, the Northern Gateway oil pipeline is also in the race, a steed running on its own muddied track.
None of this hydrocarbon confusion may be unusual in the early stages of what's likely to be a photo finish. But as we look to 2014, we will see the 14 LNG consortia leaders having to necessarily consolidate and standardize their projects. Only then will the real race to ship Western Canadian natural gas to Asia begin.
Table 1 shows a list of proposals to export liquefied natural gas off the coast of British Columbia. Like another me-too entrant in an overcrowded mayoralty election, Sinopec joined the fray on Oct. 22, 2013. Sinopec will probably be the last entrant to announce, closing off the project roster.
Anyone who has been to Kitimat, Prince Rupert or the communities along the proposed pipelines knows that it's delusional to think that more than four LNG projects off the West Coast of Canada are feasible. And even four may be a stretch. The final outcome is most likely to be a simple Win, Place and Show. Resources of all kinds, especially labour and services, are mismatched with the collective scale of the proposed projects. Add up the proposed export volumes of the 14 consortia members that have publicly disclosed in Table 1 and 9.2 billion cubic feet a day is supposed to be shipborne less than 10 years from now. Here is some sobering perspective: 9.2 bcf/d is nearly three-quarters of Western Canada's total natural gas production today and three times that of B.C.'s output where much of the increment is touted to come from.
An unrealistic number of projects does not mean that 10 LNG competitors will fall off the B.C. map. Some will, but mostly what will happen is the start of a phase that will include consolidation of infrastructure like pipelines, and collaboration on standards. Both will start happening in 2014.
Leave horse racing aside; the high-tech industry provides better insight into why we should expect a new, post-announcement phase of development in the LNG arena soon.
Imagine the consumer nightmare if every computer manufacturer had its own proprietary memory stick socket and WiFi standard – a world without a USB standard or a common set of wireless protocols like 802.11? Or what would happen to communities if every cellphone manufacturer had to put up its own towers and lay private fibre-optic lines? Without shared infrastructure and standards, our telecommunication and computing systems would be unmanageable chaos to the detriment of growth and customer service.
By analogy, it's not realistic to expect 14 pipeline right-of-ways, different fiscal regimes for each player, different side deals between select consortia and First Nations, unstandardized safety and environmental policies, and so on. Left to such a game of individualistic, free-market jump ball, no one will be going to the races.
What's needed is agreement on one or two energy corridors for pipelines and other utilities to end in each of the leading export sites, Prince Rupert and Kitimat. Also needed are sets of uniform and transparent policies and deal terms. Gathering around a table and agreeing to terms for mutual benefit is difficult for an industry that is traditionally fiercely competitive, especially in the early stages of a rivalry. Yet, what's needed is a balance between collaboration and competition. No one wants to see water poured on a competitive spirit.
The high-tech industry offers a model of knowing when to compete and when to collaborate on infrastructure and standards for the greater good. Aspiring Canadian LNG competitors and their stakeholders will necessarily have to start consolidating their efforts. Otherwise, all bets are off.
Peter Tertzakian is chief energy economist at ARC Financial Corp. in Calgary and the author of two best-selling books, A Thousand Barrels a Second and The End of Energy Obesity.
Peter Tertzakian