Canada chills out with LNG

Conventional oil and gas continues to be under attack from protestors of various stripes. Liquefied natural gas (LNG) investment in Canada is at an all-time high. Is this a silver lining on a dark cloud?

by Whitney Hunter

If you knew there was a huge, almost untapped, market for a product you had an abundance of wouldn’t you do everything you could, as quickly as possible, to fill that void? Yeah, so would we!

Liquid natural gas (LNG) is the cleanest burning fossil fuel. It is non-corrosive, non-explosive, non-toxic and incredibly economical to transport. LNG is natural gas that is chilled to approximately –162˚ Celsius, converting it into a liquid once cooled. It takes up 1/600 of its original volume which means transporting it becomes much easier.

While not new to the game, LNG is certainly making moves and could fill a void left by government policy stifling the movement of Canada’s oil and gas products. Global LNG trade increased by 14% between 2015 and 2016, but unfortunately, this increase in demand has not been met with an increase in infrastructure spending. In Canada, this has led to a need for more infrastructure in order to explore new markets.

Canada’s primary customer for oil and gas, the United States, has been producing an increased amount of their own product in recent years. This change has meant there is a need for ingenuity in getting products to new markets. According to the Canadian Energy Research Institution (CERI) US natural gas net imports from Canada will drop to almost zero by 2040 from their current level of 5.9bcf. Fortunately for Canada, The International Energy Agency (IEA) predicts that worldwide demand for LNG will increase by more than 10 per cent over the next five years. This increased consumption will be particularly acute in Asia, Africa, Latin America and the Middle East which will account for 80% of the increase. 

One Asian market where demand continues to grow is China. There is such a high need for LNG in that country that in winter 2018, because of shortages, they were forced to shut down factories in the northern province of Hebei. This suggests, according to the Canadian Association of Petroleum Producers (CAPP), that the window of opportunity for Canada to sell our natural gas into Asia is open, and now is the time to take advantage. If Canada, and B.C. more specifically, could successfully export LNG to China it could replace up to 40 coal-fired power plants with cleaner natural gas. 

However, for this to become a reality new pipelines for LNG to travel to facilities along both the west and east coast must be built. According to the BC Oil & Gas Commission there are currently 17 major projects on their Major Project List, these include seven LNG Facilities, nine new pipelines and one Marine Jetty. According to the Conference Board of Canada this could mean as much as $7.4 billion into Canada’s annual economy over the next 30 years. But that isn’t all; these projects could also increase national employment by an annual average of 65,000 jobs. This could work to offset the estimated 76,000 jobs lost between December 2014 and April 2016 in oil and gas extraction, energy and mining extraction support, forestry, fishing and quarrying.  Each of these industries has been decimated by commodity prices, tariffs and government policies impacting the ability of industry to export their product to new markets.

It isn’t just the revenue from LNG which is impressive. The LNG Canada project which is located in Kitimat, B.C. represents the largest private sector investment in Canadian history, and according to reports will provide more than a billion dollars in contracts to Canadian businesses, including $175 million in contracts to First Nations businesses and contractors. With the proper support, this project could be a powerful signal that our industry is open for investment, letting investors know, in no uncertain terms, that Canada’s energy sector is ready to go to work.

The impact of new markets for LNG cannot be understated, especially given the self-inflicted blow to the Canadian oil and gas industry by Bill C-48. The federal government’s decision to enact Bill C-48 is, as energy author Mac Van Wielingen argues, antithetical to Canada’s strategic needs and interests but, thankfully, the moratorium on oil tankers off the west coast of Canada does not apply to LNG. This means an opportunity — which according to CAPP, Canada missed the first wave of and one which we, as a country, cannot afford to miss out on again still exists and must be taken advantage of. 

Canada is particularly well positioned to take advantage of this opportunity given our strategically beneficial geographical location. This has led to a particularly favorable landed cost advantage for the Asian market compared to the United States. According to the CERI Canada’s landed cost advantage over the US Gulf of Mexico projects by $1.7 per mmbtu (US greenfield) and by $0.3 (US brownfield). More interestingly, if Canada invested and optimized their LNG infrastructure this differential grows to $3.1 per mmbtu (US greenfield) and $1.8 mmbtu (US brownfield).

The importance of LNG projects in Canada, and specifically in B.C. which is logistically so close to new and untapped markets, cannot be ignored and it is time to get as many shovels in the ground, and people back to work, as possible. The positive impact from projects like these will be felt in every corner of our country.