Canada Finally Getting Its LNG Plant: LNG Canada Moving Ahead With Export Facility Near Kitimat

LNG Canada announced that its joint venture participants — Royal Dutch Shell plc, PETRONAS, PetroChina, Mitsubishi Corporation and Korea Gas Corporation — have taken a final investment decision (FID) to build the LNG Canada export facility in Kitimat.

 “The final investment decision taken by our joint venture participants shows that British Columbia and Canada, working with First Nations and local communities, can deliver competitive energy projects,” said Andy Calitz, CEO of LNG Canada. “This decision showcases how industrial development can co-exist with environmental stewardship and Indigenous interests.”

Click on the link below for the press conference.

“We have taken the exciting decision to move forward with LNG Canada. It is the right project in the right place at the right time,” said Shell’s gas, new energy director Maarten Wetsellaar

“It is the right project because LNG Canada is a world-scale, long-life asset that will deliver a large and resilient cash flow.”

He added: “It’s fully aligned with our strategy and builds on the world-class investment that we are committed to deliver.”

Also, the project is in the right place because British Columbia is extremely well-placed to connect low-cost abundant Canadian gas to the fast-growing gas markets of Asia.

“It is also in the right place because neighbours from the First Nations and the governments at all levels, and finally, we have a long heritage of doing successful business in Canada and we feel at ease here.

“And it’s the right time. Global energy demand is expected to double between now and 2035. And on our way to 2035, we see a potential supply shortage developing in the mid-2020s, just when LNG Canada is expected to come onstream.

“LNG Canada is important — for Shell and a game-changer for Canada.”

"The final investment decision with our joint venture participants is a significant milestone for PETRONAS and for the energy industry in Canada. The decision is a testimony of the strong collaboration among our partners and stakeholders who share the same aspiration of delivering long-term value via LNG, in line with our commitment to sustainable and responsible development of resources," added PETRONAS president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin.

PETRONAS itself last year cancelled its own Pacific NorthWest LNG project before climbing aboard the LNG Canada project

"This is the first LNG project in Canada and the project will pave the way for us to add value to our world-class gas resources in the North Montney area and strengthen our supply portfolio for LNG to the Asian markets," Wan Zulkiflee said.

The LNG Canada FID shows the challenges of predicting future supply and demand. For example, in the mid-2000s, a wave of LNG imports into Canada, and North America, was predicted (DOB, Nov. 16, 2007). Later on, the onset of the shale gas revolution in the U.S., which created a market brimming with natural gas supplies, caused proponents to reverse course and begin exporting gas as LNG — the U.S. beat Canada to the punch with its Cheniere LNG.

Canada’s LNG export hopes were dashed in part by ample LNG supply, but now that outlook has been turned on its head by expected surging demand from China as the country aims to get off of coal to reduce pollution (DOB, Sept. 19, 2018).

Calls for Canada to diversify its markets has been happening for some time, (DOB, Jan. 27, 2010), and it appears finally poised to happen with LNG Canada’s FID.

Rising American supplies have pressured Canadian gas

According to Martin King, director of institutional research with GMP FirstEnergy, rising U.S. supplies have been pressuring Canadian gas exports for years, but the “pressure is about to get a lot more intense,” he noted in a presentation.

Rising northeast supplies are starting to create more pushback on WCSB gas supplies, and backing gas out of eastern Canadian markets.

“Canadian gas [has] been competing more and more on price discounts, and looks to be staying that way; 2019 will see [a] sharp reduction in net exports on Rover completion and Nexus ramp-up.”

GMP First Energy added: “All that U.S. gas is creating more pushback on western Canadian supplies; AECO market [is] pressured by TCPL Egate IT flow maintenance changes — [it] affects primarily non-heating season prices.”

AECO prices have been suffering the one-two punch of IT restrictions on storage injections in Alberta and renewed pushback of gas from the U.S. The market has priced in deep discounts for AECO over the next few years, King noted.

LNG Canada is a “longer-term fix.”

“Canada could well have LNG exports on both coasts if Pieridae (or others) are able to FID,” King noted.

Balancing the economy, jobs and environment: B.C. government

The investment by LNG Canada shows B.C.’s future can balance economic opportunity and job creation with forward-looking environmental action that meets the province’s climate action goals, said Premier John Horgan.

“British Columbians want a future that brings opportunities for them and their kids in the communities they call home, while living up to our responsibilities to guarantee clean air, land and water for the generations that follow,” Horgan said.

The NDP government announced earlier this year a number of tax breaks designed to help smooth the way for the LNG Canada project (DOB, March 23, 2018).

In line with the government's approach to LNG, projects should:

Guarantee a fair return for B.C.’s natural resources: This project is expected to generate about $23 billion in public revenue over 40 years — new funds available to invest in health care, schools, child care and other key public services, the government said.

Guarantee jobs and training opportunities for British Columbians: This project will create up to 10,000 jobs during construction and up to 950 permanent jobs once operations are underway.

Respect and make partners of First Nations: Project partners have reached agreements with elected First Nations at the project site and along the pipeline route.

Protect B.C.’s air, land and water, including living up to the province’s climate commitments: LNG’s Canada project, as announced today — the world’s cleanest in terms of greenhouse gas emissions — will be accommodated within the government’s legislated emissions reduction targets.

LNG was the centerpiece of the predecessor governing B.C. Liberals’ economic plan. The party, under then-Premier Christy Clark, in a 2013 throne speech set a target of having three LNG facilities operational by 2020, and promised vast LNG riches. This was the lynchpin of the party’s election platform that year; it was a campaign that the party was widely expected to lose but won.

One idea that was widely panned was the B.C. Liberal plan to introduce a new “LNG tax” on an industry that didn’t yet exist. The LNG tax idea was first mentioned in a DOB article on Feb. 13, 2013. Preliminary plans for the tax were not unveiled until the following February. And the tax wasn’t formally introduced until the fall of 2014. During this gap in time, natural gas industry experts warned that delays could kill Canada’s West Coast LNG prospects.

By the fall of 2014, the oil price crash had gripped the industry (LNG prices then were largely linked to oil on long-term contracts), and oil and gas producers began reining in capital spending worldwide — none of the large LNG plants were built in B.C. and there were several project cancellations, including the high-profile decision by PETRONAS to scrap its project on Lelu Island. Meanwhile, the U.S. took full advantage and launched its own LNG industry during this time.

Gary Leach, president of the Explorers and Producers Association of Canada (EPAC), said the LNG Canada announcement, while anticipated for several months, “gives western Canadian gas producers, indeed the entire upstream oil and gas industry, some reasons to feel better about the long-term future of this basin.

“Selling  natural gas into an oversupplied U.S. market is not a business model that is working today.”

Even one LNG export facility on the West Coast of the scale planned by LNG Canada, once operating, will provide a higher floor for WCSB gas production.

“However this is all down the road half a decade. We have the reserves to support several more export facilities of this scale,” Leach said. “The B.C. and federal government’s deserve credit for finally putting in place the fiscal regime to make this competitive with other projects around the world.”

Lessons learned

Leach added that there are some lessons to be learned from the history of getting this project to FID.

“But it’s not clear the federal government has entirely grasped them,” he said. “Ottawa’s proposed Bill C-69 on major resource project approvals would set up a new review and permitting process that has inserted more uncertainty and likely delay and cost for the next round of potential LNG and other energy projects.

“While this project will likely source most of its gas from B.C., the Alberta government, in its recent 2018 economic diversification report recognizes that additional LNG development will also draw gas from, and directly benefit, Alberta. That economic diversification plan sketches out how Alberta might facilitate further LNG development and perhaps they will be taking a closer look at those ideas now that we have an FID decision from LNG Canada.”

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