Moving toward an LNG industry in B.C.

May 24, 2018

The headlines in 2016 were gloomy- a forecasted “glut” of LNG on global markets driving down global LNG prices to lows not seen in decades. This over-supply combined with depressed global energy prices postponed almost all investment in B.C.’s LNG projects which just a couple of years before had been on track to make final investment decisions and create a new industry for the liquefaction and export of B.C.’s natural gas to overseas markets.

This spring, the headlines about LNG could not be more different. Today, LNG analysts now predict there will not be enough LNG to meet forecasted future demand and the projected glut of LNG supply has not materialized. The International Energy Association predicts that because of skyrocketing demand from China and other parts of Asia, global demand for LNG will increase by up to 50-percent by 2040. This is because as more economies transition to renewable forms of electricity, they still require consistent supplies of energy to run factories, heat homes and keep the lights on when the sun is not shining and the wind is not blowing. Natural gas, which can be shipped around the world as LNG has become a leading choice for countries that are looking for a lower-carbon energy source that can be turned on and off as needed to back up renewables.

It’s said in the commodities world that the cure for low prices is low prices. This is true for the LNG market, without buyers to commit to the long-term contracts that underpin investment in new LNG projects, few major final investment decisions have been made anywhere in the world in the last couple of years on new projects that would deliver additional supplies of LNG. As a result, LNG buyers are now realizing that they need to take measures to make sure they have enough LNG to meet their needs, or they will end up paying much higher prices when LNG supplies become limited. One of the most significant changes in the global LNG market we have seen over the last three months is the indication that buyers are now looking to enter into long-term, 20-year contracts for LNG. When prices were low, buyers were content to purchase their LNG on the short-term or “spot” market but with looming shortages, they again are looking in at locking into supply agreements for the long-term. This is significant for B.C. since these long-term contracts are needed to provide companies with the investment certainty they need to commit to their projects and make final investment decisions.

The projected supply shortage for LNG is expected to be the largest in the middle of the next decade. Assuming that it takes five years to build a large LNG facility and pipeline to supply natural gas, companies developing LNG projects will be looking to make final investment decisions now and for the next two to three years in order to be ready to ship LNG for that next window of demand.

I recently had the opportunity to deliver this message and the Canada Gas and LNG Exhibition and Conference in Vancouver earlier this month. The BC LNG Alliance feels strongly that the time is now for B.C. to be positioned to create the climate this new industry needs to move forward. The B.C. government’s announcement this past March of a new framework for LNG projects levels the playing field for LNG in B.C. with other industries in the province. The announcement also helps LNG projects in B.C. compete for buyers with other LNG projects globally. We are very proud to say that B.C. will be able to supply LNG for the same price as global competitors and will also be able to do so while developing the cleanest LNG in the world, produced with the lowest emissions thanks to our province’s strong regulations that will limit the amount of emissions produced by LNG facilities.  These regulations are also leading to the lowest emissions in natural gas development by converting more natural gas wells and facilities to clean electric power.

While expectations and anticipation are more much muted than before the energy slump of 2016, current market conditions are leading to more optimism for B.C. LNG than we have seen in several years. While there is still a long road ahead of us, we are confident that we will see an LNG industry here in B.C. supplying the cleanest LNG to countries looking to further reduce their emissions by the middle of the next decade.

David Keane, President and CEO, BC LNG Alliance