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Price weakness, construction costs cast B.C. LNG projects into doubt: report

A proposed LNG site would be near Squamish, B.C.

John Lehmann/The Globe and Mail

Worries are growing that B.C. liquefied natural gas projects will face delays and cancellations as high construction costs and low LNG prices erode the confidence of international energy players.

"The coming 12 months will prove pivotal for LNG development on the Canadian West Coast," Calgary-based investment dealer Peters & Co. said in a new report.

Pacific NorthWest LNG is awaiting the green light from the federal environmental regulator. The venture, led by Malaysia's state-owned Petronas, is widely seen as the front-runner in the race to export LNG from the West Coast.

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The Canadian Environmental Assessment Agency started its review of Pacific NorthWest LNG in April, 2013. The process had been expected to take two years at most, but the agency has repeatedly asked for more information. "We believe a decision from CEAA could extend until early 2016," Peters & Co. warned.

Other projects also face uncertainty on their timing. "High capital costs, the required development of infrastructure, the extended regulatory approval process and weakness in Asian LNG prices increase the risk of deferral or cancellation of projects in the near-term," according to the 21-page study, which examines LNG proposals, natural gas producers, work-camp operators and pipeline companies.

B.C. has 20 proposals in the works. The National Energy Board has approved 11 B.C. licences to export liquid natural gas, but industry experts say only three or four projects at most will become a reality. In April, Moody's Investors Service Inc. issued a stark outlook for North America's LNG industry, saying a looming global glut means it does not make economic sense to invest billions in each venture – casting doubt on most of the B.C. proposals.

Peters & Co. noted that while Asian spot LNG prices are at depressed levels, about $8 (U.S.) for 1,000 cubic feet, the weaker Canadian dollar would soften some of the impact on revenue.

Some projects have already invested hundreds of millions of dollars. The B.C. Environmental Assessment Office recently ruled that Kitimat LNG, co-owned by Chevron Corp. of San Ramon, Calif., and Woodside Petroleum Ltd. of Australia, "has been substantially started." This means that the project will not lose the environmental assessment certificate it was issued in 2006.

LNG Canada, led by Royal Dutch Shell PLC, got environmental approvals provincially and federally in June. "We believe that LNG Canada is working towards a sanctioning decision in mid-2016," giving the proponents time to finish consultations with First Nations, Peters & Co. said.

While Pacific NorthWest LNG's project on Lelu Island and LNG Canada's Kitimat site appear to lead B.C. proposals, the rest continue to jockey for position. Other large-scale projects include Aurora LNG and WCC LNG. Beijing-based CNOOC Ltd., through its Canadian unit Nexen Energy ULC, wants to export from Digby Island near Prince Rupert. WCC LNG, co-owned by Exxon Mobil Corp. of Irving, Tex., and its Canadian affiliate Imperial Oil Ltd., hopes to ship LNG from Tuck Inlet, also near Prince Rupert.

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Only a handful of projects are expected to forge ahead, but that would be sufficient to bolster a wide array of natural gas producers, work-camp operators and pipeline companies. Hundreds of firms are counting on B.C. LNG exports to Asia to help fuel growth.

The Montney natural gas play in northeastern B.C. and northwestern Alberta stands to benefit from LNG exports, as does the Alberta Deep Basin. "Numerous parts of the Montney and Deep Basin fairway will be very competitive and suitable for LNG resource," Peters & Co. said in its study.

On the pipeline side, TransCanada Corp. is well-positioned with plans to build the Prince Rupert Gas Transmission line to Lelu Island and the Coastal GasLink route for LNG Canada in Kitimat, the report noted.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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