"No one goes there nowadays," said Yogi Berra. "It's too crowded."
The baseball legend's wisdom comes to mind after another B.C. liquefied natural gas (LNG) export facility was announced last week. Entering the fray is a joint venture between Japanese petroleum supplier Idemitsu Kosan and domestic energy infrastructure company AltaGas. Now there are at least seven consortia elbowing for terminal space on the coast. Further inland, competitors are starting to trip over each other's proposed pipelines.
On one hand, the crowding and jockeying is a good thing. Fierce, free market competition in western Canada's 100-year-old oil and gas industry has always had a way of weeding out the weak, innovating processes, getting things done expeditiously, and maximizing financial returns to companies, and to government coffers too.
Table 1 shows a list of LNG project consortia, size of facility and estimated start-up date.
Until recently, even the leading projects seemed to be moving at a snail's pace. Competitive tension was slack, but that's changing now. Malaysia's Petronas is now solidly in the game after acquiring Progress Energy, and Chevron has muscled in on the hitherto languishing Apache-EOG-Encana project. Past front-runner Shell now has some serious race mates, which means that there are now three big hitters leading the pack (top three in Table 1). Like in any business, the first to market will have a distinct advantage over Johnny-come-latelies. That's probably not lost on shadowy, global giants BG Group and Exxon Mobil, who are likely to move in from the periphery and join the crowded spotlight of leaders through an acquisition.
Coastal terminals are just an endpoint. Each consortium needs to get large volumes of natural gas from northeast B.C. westward to their proposed facilities via pipeline. Leading project operators have announced their pipeline partners and proposed routes. It all sounds like a free-market capitalist textbook, but a crowd of big competitors faces distractions in this region.
Company foot soldiers, each pushing the selfish interest of their respective consortia, are running around small communities that are suspicious of even one project, let alone half a dozen. The competitive fray is socially complex and replete with inner conflict. High unemployment is mixed in with unresolved first nations claims, community concerns, unwavering environmental sensitivities, and well-funded special interest groups that have no special interest in pipelines and energy infrastructure. At ground level, northern B.C. is an already skeptical region. Small communities along the way are not accustomed to global companies jousting along 800-km corridors as each try and thread their pipes from gas fields, through tight mountain passes, to only a couple of usable port sites on the coast. Adding more fog to an already clouded circumstance, Enbridge's contentious Northern Gateway oil pipeline is another challenger vying for social licence across the land.
Like any competitive business situation, jockeying to be first-to-market involves trash talking your worthy opponents. Anecdotal evidence suggests this is already happening, which is not surprising, because forceful competitiveness is in the DNA of all the players. Yet oil and gas consortia elbowing each other will only serve to jade the already incredulous purveyors of social licence in this region, and collectively hinder the prospects of all competitors in the crowded landscape. Lack of unity will feed into the hands of protest movements. Necessarily the companies in Table 1 will have to shed some of their gamesmanship and work together to push collective interests. But this will be very hard.
On the positive side, the industry has a long-standing track record of entering into mutually beneficial joint ventures and collaborative agreements. However, the physical and regulatory reality is that there is probably only room for two or three big LNG projects. So there is more incentive for gas players and an oil rival to keep competing than to work together.
For sure, western Canada doesn't need any more LNG project announcements. No one should go there any more, because it's too crowded.