International Energy Agency report casts pall over B.C.’s LNG industry
The IEA report says declining prices and a significant increase in supply over the next few years will squeeze Canada's LNG industry
CALGARY—The outlook for Canada’s liquefied natural gas industry over the next five years has “darkened,” said a report released June 4 that casts clouds over British Columbia’s LNG ambitions.
The report by the International Energy Agency (IEA) predicts Canada won’t have any LNG export projects online by 2020, which would go against B.C.’s goal of having three LNG plants in operation by that time.
The B.C. government has been betting big on LNG for economic growth. It has said it expects more than $100 billion in tax revenue and a trillion dollars could be added to the province’s GDP over the next 30 years if five projects go ahead.
The province has based its LNG export plan on strong demand from Asia, but that demand has slowed, the IEA report said.
“One of the key, and largely unexpected, developments of 2014 was weak Asian demand,” IEA executive director Maria van der Hoeven said in a statement. “Indeed, the belief that Asia will take whatever quantity of gas at whatever price is no longer a given.”
The IEA report says there will also be a significant increase in supply over the next few years, with LNG capacity increasing by 40 per cent by 2020. That is expected to put further pressure on already low natural gas prices.
Much of that supply is coming from the United States, where projects are being built on existing gas infrastructure, which reduces capital costs.
LNG projects in B.C. face higher costs because of many of the projects would have to be built from scratch in remote locations, with long distances between the proposed terminals and gas fields.
Alex Munton, an energy analyst at Wood Mackenzie, said the combination of strong competition and low natural gas prices have hit Canada particularly hard.
“Canada has been squeezed and projects haven’t had the success that was hoped for when many of these proposals were put forward.”
With markets shifting, the B.C. government has been working to make LNG investments more attractive. Last month, it agreed to long-term royalty rates on the proposed $36-billion Pacific NorthWest LNG project to try to secure a final commitment.
“We are aware of the short-term challenges outlined in this report and have plans to address them,” Rich Coleman, B.C.’s minister of natural gas development, said in a statement. “We have put policies in place to give LNG proponents long-term certainty and build on our competitive advantages.”
Munton said that thanks in part to the pullback in investments in Alberta’s oilsands, other Canadian projects could now see lower costs.
“There is an opportunity now for Pacific Northwest and potentially others to capitalize on low development costs.”
The IEA report says natural gas demand will grow by two per cent annually until 2020, down from the 2.3 per cent average growth over the past decade.
“It’s still a growing market, so that means there’s still opportunities for new projects,” said Jackie Forrest, vice-president of research at Calgary-based Arc Financial. “As you get out into post-2020, I think there’s more opportunity for new projects.”