B.C. natural gas woes threaten deals with Japan

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Concerns about Western Canada's worker shortages and uncertainty regarding a proposed B.C. tax on natural gas exports threaten to stall business trade between Canada and Japan, according to a director at the Japanese government corporation that helps secure the country's oil and gas supplies.

Public anger stemming from the Fukushima plant disaster pushed Japan this week to shutter the last of its working nuclear reactors – an energy source that provided 30 per cent of the island nation's power before the earthquake and radioactive water leak.

Coal and liquefied natural gas (LNG) have helped fill the vacuum, but have also spurred higher prices and strained the Japanese economy. Japan is now looking to get around the oil-linked prices and its reliance on Australia, Qatar and other Asian countries, and is looking to take advantage of low North American prices.

As Western Canadian natural gas producers struggle against abundant U.S. supplies and low prices, Japan – the world's No. 1 LNG importer – is keen to strike Canadian deals, Shinji Fujino of the Japan Oil, Gas and Metals National Corp. said Wednesday.

To that end, the national corporation has provided equity financing to companies such as Mitsubishi Corp. and Japex Montney Ltd. for interests in B.C. natural gas developments. It is investing in research to increase the value of natural gas assets and reduce costs.

But Mr. Fujino, who heads the business strategy department of the oil and gas upstream business unit for the national corporation, said uncertainty about the B.C. government's tax plan is keeping some private companies from making a final decision about whether to invest in liquefied natural gas facilities in Canada. Earlier this year, Christy Clark's government said an export tax could bring in $30-billion over 30 years.

"If it is too expensive, it's a serious problem – not only for the Japanese investor but also for other countries," he told reporters following a panel at an LNG export forum in Calgary on Wednesday. "It is not clear."

In June, Tokyo Electric Power Co. Inc., the world's single largest LNG importer, also warned that a new tax on gas exports could slow the development of the industry. Officials from Chevron Corp. and Shell Canada Ltd., companies leading major LNG proposals, have said they are in talks with B.C.'s Liberal government to emphasize the importance of competitiveness in a nascent industry already facing high capital costs.

On Wednesday, Mr. Fujino also said Canada needs to avoid the labour shortages issues Australia has faced in the development of its LNG facilities – where cost blowouts have become a norm. He said he knows the provinces and Ottawa are "making efforts" in this regard.

Many speakers at the LNG conference – including Canadian Chamber of Commerce president Perrin Beatty and former cabinet minister Jim Prentice – reiterated the long-standing concern that if Canada is not quick enough to build LNG facilities, it will lose out to U.S. and other global exporters, and be left behind in the race to get natural gas to lucrative Asian markets.

Jeff Tonken, chief executive of Birchcliffe Energy Ltd., said the U.S. move to delay a decision on approval of the Keystone XL project – which would bring Alberta crude to refineries on the U.S. Gulf Coast – is a boon to the development of Canada's LNG market.

"What that has done is woken up Canadians to the fact that we're not just going to be able to move our products to the U.S. and sell them," Mr. Tonken said.