By Robert Roach
In the Province

Nov. 4, 2013


British Columbia has proclaimed its emerging liquefied natural gas (LNG) industry as a major revenue source for the Crown, a long-term solution to provincial debt and a source of thousands of new jobs. It can be all of these things, but a new Canada West Foundation report suggests it won’t be easy.

The problem is that there is going to be more natural gas available to Asia than it needs, which means that BC will face tough competition from other suppliers, many of whom are starting off in a better position when it comes to servicing the Asian market. The pace of development must ensure that BC supplies reach the market within a relatively narrow time window. The longer it takes to get pipelines and plants built, the harder it will be to capture a share of the Asian market.

The seven BC projects announced to date, if they all proceed, would create a total of 119 billion cubic metres (bcm) per year of export capacity. We do not expect them all to proceed, but if they did, this would more than triple BC’s natural gas production. The potential is huge. However, to achieve success, industry and government must work together – and quickly.

The target market is Asia, but Asia will soon be oversupplied with natural gas. Current LNG imports total 207 bcm per year. Pipeline imports account for an additional 30 bcm of gas per year. By 2025, Asian demand is expected to grow by 216 bcm. Most of the growth will occur in China.

To be a part of this market, and to live up to expectations, BC LNG producers must overcome three main market hurdles: competition from other LNG suppliers whose projects are further along, competition from pipeline projects originating in Russia and competition from China’s own emerging shale gas market.

Asia’s current LNG suppliers have collectively announced 269 bcm per year of incremental LNG capacity. Of this, 97 bcm is currently under construction and a further 90 bcm has completed the front end design work and is thus more advanced than the BC projects. The incremental LNG from these projects would be 53 bcm more than expected market growth, and does not include pipeline projects from Russia that are at various stages of progress and offer an additional 105 bcm of gas supply to China by 2020.

On top of all that, China has plans to develop its own shale gas industry, contributing 150 bcm of new supply by 2030. Then there are US LNG projects totaling 167 bcm, a portion of which will target markets in Asia. As a result, we see an over-supplied market and price competition on the horizon.

The most advanced BC project (Kitimat LNG) has the necessary approvals to start construction, but has not yet done so. A couple of projects have applied for the federally required export permits. Other projects have been announced and are at the planning stage. The total capacity of the seven BC projects currently on the books is 119 bcm per year. That’s a lot of gas to move into what is shaping up to be a very crowded Asian market.

So what makes BC projects attractive in Asia? Price.

For a complex set of reasons, Asian consumers currently pay a much higher price for natural gas than North Americans. The plan is to sell BC gas at the lower price (plus the cost of transportation and liquefaction) and, in turn, capture a chunk of the Asian market. However, this will also put downward pressure on the revenue stream for BC producers.

No one likes a spoilsport and the goal of pointing out the challenges facing BC’s LNG industry is not to deny its potential, but to highlight the need to act fast and aggressively in the face of stiff competition. Maintaining realistic expectations is more important than overpromising and under delivering.

Managing Expectations: Assessing the Potential of BC’s Liquid Natural Gas Industry can be downloaded at Robert Roach is the Vice President of Research at the Canada West Foundation, the only think tank with an exclusive focus on policies that shape the quality of life in western Canada.