A look at the Economic, Social and Environmental Features of the LNG Market in British Columbia

David Keane is President of the BC LNG Alliance in Vancouver, a consortium of seven corporations working to create LNG export plants on the West coast to tap Canada’s massive natural gas endowment. He has 33 years’ experience in the energy sector and has worked in more than 15 countries for oil companies in many capacities.

David Keane, President of the BC LNG Alliance

David Keane, President of the BC LNG Alliance

He spoke with ENERGY to discuss the marketing, economic, social and environmental challenges facing his LNG developers. These projects are important to the country’s gas industry but also to Canada as whole. These are nation-building efforts. Here’s a transcript of his interview:

Francis: Who are your members and what are their biggest challenges today?

Keane: We have seven members and those members are working on developing their projects. They range in size from the very large like Shell’s LNG Canada, Petronas’ Pacific Northwest LNG, ExxonMobil’s WCC LNG and Chevron’s Kitimat LNG projects to the smaller ones like the AltaGas Ltd’s Triton LNG and Woodfibre LNG’s projects.

When these projects started, oil was around $100 per barrel and now we are looking at $30 per barrel. This is causing companies to focus on capital discipline which means these projects are going to have to be very cost competitive to move forward.

Woodfibre LNG project, preliminary project configuration. Photo curtesy of FortisBC.

Woodfibre LNG project, preliminary project configuration. Photo curtesy of FortisBC.

Francis: Which ports are these projects looking at using?

Keane: These involve the Ports in Prince Rupert, further south in Kitimat, and then even further south in Squamish.

Francis: At what point of approval are they?

Keane: All of these projects have received their NEB export licenses, some are still in the process of waiting to receive their environmental approvals from the Canadian Environmental Assessment Agency, and some have received their environmental approvals like LNG Canada.

Francis: Do all of the seven projects have their First Nations partners signed on?

Keane: Most of them have First Nations signed on, but what I think is very important is the very good work our members are doing with their First Nations partners. They recognize that the projects will provide long-term sustained economic benefits for the First Nations as well as local communities. Not to mention the positive economic benefits that it will have on all of Canada.

Francis: Who is going to be the first to come on based on who is the most advanced?

Keane: All of our members are working hard to get their pipelines and rights of way done. These projects will take about five years to construct once they have been sanctioned by their individual companies.   We may see one or two final investment decisions this year that would bring projects online in 2021-2022. However, the projects must be globally competitive before they will be sanctioned.

Francis: How big are these seven projects?

Keane: A large plant will consume about 2.5-3 bcf of gas supply per day. So we have five large and two small. So we are looking at about 13 to 16 bcf of gas supply per day.

Francis: What have been the major hold-ups?

Keane: One of the major hold ups is the decline in oil and natural gas commodity prices. This is a capital expenditure problem and a market problem. When you go back to when these projects started, oil was over $100 and LNG in Japan was selling at about $18/mmbtu and today it is about $7/mmbtu. So, again, we have to be globally competitive in order to get these projects over the finish line. All of our project proponents are working very hard to manage that. They are certainly working with contractors and suppliers to find ways in which they can reduce costs.

Francis: Does the decline in the Canadian dollar help?

Keane: Yes to some degree, but not as much as you might guess. While the Canadian dollar has declined over the U.S. dollar, it is important to note that some of the equipment used in these projects will be modularized and built outside of Canada and paid for in U.S. dollars. So you get some savings for workforce costs, but some of the equipment will be built offshore and paid for in U.S. dollars.

Francis: Do all of these projects have long-term buyers and contracts?

Keane: I cannot talk about individual projects, but I can say that they are all working hard to get to a point where they have long-term contracts with prospective buyers. It is important to note that in the make-up of our proponents there are different economic models. On the one hand, you have entities that are state-owned and others that are international oil companies. Their economic drivers are going to be slightly different – their rates of return might be different, their expectations might be different, and the state-owned companies have a built in home market for LNG. The international companies are differently situated, and will need to find markets. However, they all have to be competitive.

Francis: Who are we competing with?

Keane: Australia, the U.S. Golf Coast, the Middle East, Africa, and Russia. But we should remember that buyers are going to want to diversify their supply mix. British Columbia also has some huge advantages. One is our proximity to Asian markets – we are much closer to China, Japan, and Korea than the U.S. Golf Coast or than East Africa to China or Japan. As well, we have about a 25 per cent increase in the production capacity in our LNG facilities for the same amount of investment that would be made in warmer climates, such as the U.S. Gulf Coast because of our cold climate. It takes considerably less energy to cool and liquefy gas in a cold climate than in a warm climate.

The flag of British Columbia.

The flag of British Columbia.

Francis: What can governments do to support this moving forward?

Keane: We have an enormously supportive provincial government – from the Premier to ministers and officials. From a First Nations perspective, the companies are moving dialogue forward and all of our proponents are working hard. We are seeing a tremendous amount of work on this happening. Contrary to what you might read in the press, we are seeing a tremendous amount of support from First Nations.

Francis: What about LNG development on the Canada’s East coast?

“All of our members are working hard to get their pipelines and rights of way done.”

Keane: The East coast isn’t my area, but I know that projects are being looked at. What’s important here is that we need to develop new markets for Canadian natural gas or this gas is going to be kept in the ground. We are losing our traditional export market as the U.S. is becoming energy independent and is expected to be a net exporter themselves by 2017. Western Canadian natural gas is also losing market share in eastern Canada where more natural gas is being supplied from the northeastern U.S., such as Pennsylvania’s Marcellus Shale.

Francis: At the peak, Canada used to supply 18 per cent of U.S. gas needs. Has the window closed around that?

Keane: It is down to about six or seven per cent. There is always going to be some baseload natural gas supply requirements to the U.S. from Canada, but we really need to find new markets for our supply.

Francis: What are your thoughts on climate policy and all of this?

Keane: When we start looking at climate change and we start talking about carbon taxes, we should make sure that we don’t do something that would inadvertently shut in emissions intensive and trade exposed industries. British Columbia accounts for 0.002 per cent of global greenhouse gas emissions –by producing gas here and exporting it to help other jurisdictions, such as China (who are currently using coal for power generation) we can have a tremendous positive impact on reducing global greenhouse gas emissions. For instance, replacing coal-fired power generation in China with natural gas electric generation can reduce greenhouse gas emissions by as much as 50 to 60 per cent.

Francis: Did the Federal government sign on to agreements that will hurt this industry?

“British Columbia also has some huge advantages.”

“British Columbia also has some huge advantages.”

Keane: The LNG industry does not have a problem with a price on carbon in British Columbia nor do we have an issue with a potential increase on the price on carbon. But, as I mentioned earlier, we have to protect emissions intensive and trade exposed industries. Therefore, we should wait until other jurisdictions have caught up to where British Columbia is. Otherwise, you will see competing countries, that don’t have the stringent regulations we have in Canada and British Columbia, capture the LNG opportunity. This could increase the amount of emissions, which would not be beneficial or helpful in combatting climate change.

Francis: On an optimism scale of 1-10, where ten is the most optimistic, where are you as to whether we are going to create a viable LNG industry in B.C.?

Keane: I’m a seven. I’m very optimistic.

Diane Francis, editor at large, National Post and author of “Merger of the Century: Why Canada and America Should Become One Country.”