Canada falls further behind in global LNG race

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The National Energy Board is painting a bleak outlook for backers of Canada's liquefied-natural-gas projects as Australia and the United States add supplies to a global market already brimming with LNG.

The regulator's assessment stands in stark contrast to the optimism that surrounded the industry five years ago, when energy companies had big dreams of exporting LNG from Canada to overseas customers.

"The majority of the near- to medium-term increases in supply will come from capacity already under construction in Australia and the U.S., which combined account for 75 per cent of capacity under construction worldwide," the NEB said in a study released on Tuesday. "This will secure Australia and the U.S., along with Qatar, as the world's largest LNG exporters in the next decade."

Woodfibre LNG is the only Canadian project to have committed to start construction so far, despite sharply lower prices for the fuel in Asia. Woodfibre LNG plans to build a small-scale plant on a former pulp mill site near Squamish, B.C., located 65 kilometres north of Vancouver.

Of the 24 Canadian LNG proposals tracked by the NEB, 18 are in British Columbia, three in Nova Scotia, two in Quebec and one in New Brunswick.

"With LNG prices falling in recent years, the margins needed to justify this type of capital-intensive development have eroded. Increased competition has also made it difficult for Canadian projects to sign long-term supply contracts," the NEB said its 26-page report.

Canadian LNG proponents are seeking to alleviate concerns about greenhouse gas emissions, address worries over hydraulic fracturing at natural-gas well sites and deal with opposition among some Indigenous groups to pipeline routes.

"Canada is a late entrant to global LNG markets and the next several years will be critical to the development of the Canadian LNG industry," the regulator said in its study, adding that Asian markets remain on the radar for B.C. LNG proponents. "West Coast Canadian LNG projects have a shorter shipping distance to Asian markets compared to U.S. Gulf Coast facilities."

The lack of success in securing long-term contracts with LNG customers has resulted in project delays and cancellations, the NEB noted.

"It certainly makes the economics of projects very challenging when you have that decline in LNG prices that has happened over the last two years," NEB chief economist Shelley Milutinovic said in an interview. "But there are people actively working on both coasts who think they are going to get their projects through. So, people haven't given up entirely."

Adding to the uncertainty in B.C. is the incoming NDP minority government led by premier-designate John Horgan, who will be sworn in as the new premier on Tuesday.

The BC Liberals touted LNG riches during the 2013 provincial election campaign, but the LNG topic became a footnote in the 2017 B.C. election.

Industry observers are awaiting what the NDP will do on the LNG file.

Energy experts say the NDP will likely be more receptive to the LNG Canada project in Kitimat than the Pacific NorthWest LNG consortium's plans to build a liquefaction plant on Lelu Island in the Port of Prince Rupert. Royal Dutch Shell PLC leads LNG Canada while Malaysia's state-owned Petronas is spearheading the Pacific NorthWest LNG project.

The BC Liberals won 43 seats in the May 9 provincial election, outpacing the NDP's 41 seats. But the Greens scored victories in three ridings and have formed a political alliance to back the NDP.

Bruce Ralston, the NDP's LNG critic who won re-election in the Surrey-Whalley riding, has said B.C. job guarantees are crucial and it is also important to develop training and apprenticeship opportunities.

NDP members have expressed environmental concerns about Pacific NorthWest LNG's planned liquefaction plant on Lelu Island, but it remains to be seen whether they will support potential changes such as relocating docking facilities.