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B.C. LNG industry optimism returns

LNG Canada construction to start this year in Kitimat, CEO says
A tanker loads liquefied natural gas at a Japanese port. Japan is eager to import Canadian LNG, say officials. Shutterstock/Sattahipbeach

Construction will start this year in Kitimat on the largest energy infrastructure ever built in this country, the CEO of LNG Canada confirmed last week at the annual Canada Gas and LNG Conference.

Meanwhile, as the company continues to move forward on the $40 billion project, other smaller players are appearing on the local stage – including a new Vancouver firm called True North Energy Corp., which is developing a niche market by marketing B.C. liquefied natural gas (LNG) to China and moving it by intermodal container.

Following an oil price plunge in 2014 and the cancellation of several LNG projects, prospects for a B.C. LNG industry appeared to have evaporated. In early 2017, it was predicted that the world would be oversupplied by the commodity and that no new large LNG plants would get a final investment decision until 2019 or 2020.

“But at the end of the year, suddenly that changed,” said Calvin Xu, co-founder and CEO of True North Energy.

Oil prices are up, improving cash flows for major oil and gas companies, and demand in China and other Asian countries is growing faster than expected, making the more cost-competitive LNG projects more economically viable than they were just one year ago.

In 2017, natural gas consumption in China rose by 15.3% over 2016, pushing spot prices up to US$30 per million British thermal units, and in the first quarter of 2018, China’s imports of LNG grew by 59%, Xu said.

Helping drive those numbers is China’s aggressive push to reduce its reliance on coal power by switching to renewables and low-carbon natural gas. But China has also aggressively pushed its transportation sector to switch from gasoline and diesel to compressed natural gas and LNG. According to Xu, there were 350,000 LNG vehicles in China in 2017 – a 40% increase over 2016.

China’s current five-year plan aims to raise its use of natural gas to 10% from 7% by 2020, and to 15% by 2030. That works out to 50 million tonnes by 2020, he said.

To put that in context, the first phase of the LNG Canada project would use two separate cooling processes (“trains”) and would produce 13 million tonnes of LNG. At full build-out it would use four trains and would produce 26 million tonnes.

“That’s a lot of new demand,” Xu said. “There’s a lot of room for Canada to supply China.”

Japan also wants Canadian LNG, said Takuma Iino, deputy director of oil and gas for Japan’s Ministry of Economy, Trade and Industry.

Japan is the world’s largest importer of LNG, bringing 83 million tonnes into the country in 2017. Australia, the source of 30% of those imports, is its largest supplier, while Malaysia represents 17.7% of Japan’s LNG consumption and Qatar has a 12% share.

“One of the key policies of Japan’s LNG procurement is diversification,” Iino said, adding that Japan is now beginning to take shipments of LNG from the U.S.

“We haven’t imported LNG from Canada at this moment; however, we believe that importing LNG from Canada will be important because it contributes to our diversification of energy sources.”

In 2016, when LNG Canada put its final investment decision (FID) on pause due to poor market conditions, the company made it clear the project was delayed, not cancelled.

“We also at that time said, when they asked the inevitable question … ‘When will you reconsider the FID?’ our answer was we will be in construction in 2018,” LNG Canada CEO Andy Calitz told last week’s conference. “I reaffirm that commitment today.”

That is music to the ears of the Haisla Nation and the town of Kitimat.

“We’re done waiting,” said Haisla Chief Crystal Smith. She said the Haisla have used the two-year pause to get people trained in the skills they will need to benefit from the project.

“We need one of these projects to go ahead,” she said. “Our people are ready.”

Project officials said the delay has allowed them to work on getting costs down. It also allowed TransCanada Corp. to firm up relations with First Nations along the corridor of the Coastal GasLink pipeline, which will move natural gas from the Dawson Creek region to Kitimat.

“We’re confident now that we have the programs and the agreements in place to involve the First Nations – every single one of the First Nations – along our route,” said Greg Cano, director of project planning and execution for Coastal GasLink Pipeline Ltd.

Other parts of the project have recently fallen into place. The BC NDP government levelled the playing field by eliminating special taxes on the LNG industry; LNG Canada signed an engineering, procurement and construction contract with Fluor Corp. and Japan’s JGC Corp.; and though Calitz did not mention it, B.C.’s energy, mines and petroleum resources minister recently said that Malaysia’s Petronas is now planning to take a stake in the LNG Canada project.

One of the problems for large multibillion-dollar projects, however, is securing long-term contracts with Asian buyers. Banks need the assurance of long-term contracts before underwriting such massive investments.

But because natural gas prices are so low in North America, Asian buyers have been balking at long-term contracts and are instead pushing for shorter-term deals and lower prices.

Japan has been working to address some of those issues. It has been working with other LNG-importing jurisdictions, including India and the European Union, to improve markets, create a new, transparent Asian LNG pricing benchmark and build more LNG-related infrastructure throughout Asia and Europe. Japan has committed $10 billion to help companies invest in LNG infrastructure.

Iino said the demand for LNG is expected to grow not just in China and Japan, but in other Asian and South Asian countries as well – Pakistan and India, for example.

“Natural gas demand in East Asia could potentially expand about 2.5 times between now and 2030, from 200 million tonnes to around 500 million tonnes,” he said. “We believe that Canada, as a new supplier of energy, would play an important role in developing a flexible and open energy market in Asia and the world.”

While the biggest use of LNG in Asia is for power generation, new international marine shipping regulations are expected to result in more international ocean vessels switching from bunker fuel to cleaner-burning LNG, which will require new LNG bunkering terminals in major ports.

“Japan’s Ministry of Land, Infrastructure and Transportation is also making efforts to strengthen the network of LNG bunkering ports, including Port of Vancouver,” Iino said.

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