Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Cancel Anytime
Enjoy Unlimited Digital Access
Get full access to
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

A wave of oil and gas spending is looking likely to hit Western Canada over the next few years. Opportunists will grab their surfboards and ride the investment. Others, fearful of change, will run for the hills. Those who don't plan for the coming liquefied natural gas (LNG) capital wave may be drowned out.

The good news is we can see the industry's capital expenditures coming like whitecaps on the horizon. There is time for all stakeholders to strategize the implications.

Already, without LNG spending, the flow of capital is sizable. On average, every five-and-a-half days, Canada's oil and gas industry spends a billion dollars; that's $67-billion a year. And that amount is only the capital expenditures in the upstream segment – the drilling of the wells, completing them, and tying them into the North American energy grid, up to the point of the major midstream infrastructure like pipeline arteries. Spending on the oil sands is included in the $67-billion, constituting about 40 per cent of the total annual investment.

Story continues below advertisement

LNG is the big story that will really start to gather momentum this year. Up to this point, 14 separate project consortia have been busy funding engineering designs, filing regulatory documents, jockeying for position and mostly just talking a lot. As we enter 2014, seven of the 14 consortia have received their National Energy Board (NEB) approvals to export LNG. But that's not enough to open the big wallets.

Next, the market will be listening for the first "final investment decision" (FID). That's a boardroom edict that sanctions construction; the pouring of concrete and the welding of steel. When the likes of Shell, Petronas or Chevron issue their FIDs from head office, that's when the spending siren will sound. And that's when the wave will get real.

As we've written in the past, the building of 14 LNG projects to completion is wholly unrealistic. But two or three – a couple in Kitimat and one in Prince Rupert – can be envisaged over the next decade. The potential magnitude and timing of the forthcoming capital wave can be estimated from publicly disclosed documents and anecdotal intelligence. In Figure 1, we show an estimated rate of annual spending assuming only three of the half-dozen leading projects get their corporate go-aheads.

There are three broad components to building out Canada's LNG export capability: Upstream drilling to increase productive natural gas capacity; the building of pipelines to get the gas to the Pacific coast; and construction of the liquefaction and port facilities to load the ultra-cold liquid onto tankers. The bars in Figure 1 break down the components for each year.

Note: Not all of the dollars in Figure 1 will be spent in Canada. Modularized components for liquefaction plants will probably be made in places like South Korea, then barged to the B.C. coast and assembled on site. So, deduct a few billion from our chart. Regardless, the domestic outlay will be very large relative to the status quo economy, because upstream drilling and laying pipeline can't be farmed out of the region.

What will be built and what won't is still unknown. If three projects get the green light, the implied wave of capital crests at $16-billion a year in 2017. Let's consider some comparative perspectives. Spending by oil and gas companies in B.C. is typically only $6-billion a year, so the magnitude of what's to come could be nearly triple at the peak. How about the speed of the wave? What happened during Alberta's early oil sands development provides a comparative vignette: Three LNG projects will generate a steeper spending swell than what the Fort McMurray area experienced a decade ago.

As a final comparison to gauge the magnitude of what's happening, consider another Canadian energy megaproject that is not oil and gas related: The Muskrat Falls hydro dam in Newfoundland and Labrador, already under construction. Current reports peg Muskrat's total cost to be a relatively paltry $7.8-billion – spent over seven years. That equates to about a billion dollars every year – not every week.

Story continues below advertisement

Countries that develop mega infrastructure projects are beneficiaries of employment, tax revenues, market diversification, investment opportunity and other coveted underpinnings of economic growth. Yet, the forthcoming LNG beach party sounds too good to be true. Can the surf created by too much money, spent too quickly, drown out even the biggest Kahunas on the beach?

Next week: Surfing the potential consequences of the coming LNG capital wave (and other waves as well).

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.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies