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BC LNG precarious
Green Party threatens to topple government if it continues to promote LNG
Gary Park Petroleum News
Whatever the socialist New Democratic Party government of British Columbia might proclaim about its support for LNG development, it is at the mercy of B.C.’s Green Party, whose three elected legislators in an 87-member assembly wield disproportionate clout.
That mathematical reality shapes the thinking of Premier John Horgan faced with an uncompromising stand by Green leader Andrew Weaver, who threatened in January to topple the NDP’s minority government if it continued to promote the province’s fledgling LNG industry by opening the way to further natural gas development and to exports of gas-based resources.
During a trade mission to Asia in January, when he met with Chinese, Japanese and South Korean partners in the Shell-backed LNG Canada project, Horgan effectively delivered the Green message that LNG projects will first have to meet his province’s environmental standards, establish First Nations’ partnerships and create jobs and benefits for British Columbians.
He gave no indication if and when Asian buyers might be able to anticipate the first LNG shipments from British Columbia - further proof to many observers that the drain of foreign investment from B.C. will continue unabated.
Mostly negative signals Since getting elected 10 months ago, the Horgan government has delivered mostly negative signals to LNG proponents, canceling an international LNG conference that had been planned for November 2017, advising delegates and exhibitors that there was “not enough time to deliver an event of this size.”
When Malaysia’s Petronas announced last July that it was walking away from the Pacific NorthWest proposal, the NDP government was quick to absolve itself from any part in the demise of the C$36 billion project.
Energy Minister Michelle Mungall said Petronas was “very clear ... this was a decision they made because of the economic challenges in the global energy marketplace. The Pacific NorthWest project as proposed was uneconomical.”
Backing away from export hopes Those decisions and the government’s lukewarm view of the outlook for LNG send out a clear message that B.C. is backing away from LNG export hopes while creating a global market vacuum that the U.S. is vigorously pursuing.
A month ago, Cheniere Energy signed a 25-year LNG supply deal with state-owned China National Petroleum Corp. for 1.2 million metric tons a year from its facilities on the Texas Gulf Coast, starting this year.
The U.K.-based Financial Times said the transaction is “the first, direct long-term supply contract ... between a Chinese company and a U.S. LNG supplier. Chinese demand for LNG is expected to grow sharply as Beijing looks to cut its coal usage as the country’s main source of heating and is set to become the world’s top LNG importer by 2030.”
Amid an increasingly bleak outlook, B.C. is left clinging to hope that LNG Canada will proceed, encouraged by Shell’s recent announcement that it has short-listed two international engineering and construction consortiums for the design, production and construction of a multibillion dollar facility near Kitimat on the northern B.C. coast, promising a final investment decision in the second half of 2018.
Thread of hope In addition, Shell dangled a thread of hope in Houston earlier in March when its chief executive officer Ben van Beurden told oil and gas executives that his company was eager to invest in LNG.
He reiterated Shell’s view that global LNG markets face a supply shortfall by 2020 at the same time U.S. and Canadian gas production is ramping up.
“This is not a bad time to start thinking about LNG investing again,” van Beurden said, pointing to signs that the market cycle is beginning to turn.
That presents one of the few threads of hope for Canadian natural gas producers who are desperate to see an LNG project completed in B.C. at a time when pipeline bottlenecks, along with contracting and maintenance issues, have driven Alberta gas prices into negative territory at different times over the past year.
Shell, the world’s largest LNG supplier since a US$50 billion merger with BG Group two years ago, published a global LNG outlook in February that forecast a supply shortage of 275 million metric tons over the next few years.
The LNG Canada project could take a 10 percent bite out of that shortage by exporting as much as 26 million metric tons a year.
Cost overruns in Australia Interest in B.C. has also been attracted by a prospective shuffle of assets involving Chevron and Australia’s Woodside Petroleum, which are looking for a way out of the huge cost overruns they have accumulated at the Gordon LNG and Wheatstone LNG joint ventures in Australia.
Woodside said earlier in March that it has axed plans to build a plant at Grassy Point, 20 miles north of Prince Rupert, opting instead to concentrate on its 50-50 Kitimat LNG venture operated by Chevron.
Woodside said it has decided not to renew its rights to develop Grassy Point to export 20 million metric tons a year “after careful consideration of our long-term development strategy in Canada.”
The exclusive rights to develop the 1,700-acre site at Grassy Point were won by Woodside, which beat out South Korea’s SK E&S Co. and a team of ExxonMobil and its Canadian unit, Imperial Oil.
Chevron has told industry sources it is not contemplating ownership changes in the short-term at Kitimat LNG, but those sources told Reuters that the company is exploring options to sell a minority stake to parties that include Petronas.
The sources also said Chevron is weighing the sale of a stake to a financial investor such as a Canadian pension fund or a private equity firm.
A deal with Petronas could include a commitment to supply gas feedstock over 20 to 25 years to produce 10 million metric tons a year of LNG.
Chevron refused to comment on “commercial matters, rumors or speculation.”
Meanwhile, the remaining active LNG proponents in B.C. are making little headway in seeking relief from Canadian government duties on imported steel, which would add a prohibitive cost to prefabricated LNG modules that would be constructed in Asia and assembled at terminal sites.
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