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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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This Is Why Canada Lost The LNG Race

LNG Vessels

Two weeks ago, it looked as if Canada’s fledgling LNG hopes would finally be resuscitated. Shell’s chief financial officer Jessica Uhl told analysts during the company’s second quarter conference call that the future of the twice-postponed C$40 bn (US$30.75 bn) LNG Canada project slated to be built in British Columbia (BC) near Kitimat was still under study.

"LNG Canada looks very promising and together with our partners we need to finalize consideration of a few key items before we can take a positive final investment decision," she said. "We see great opportunities but we also have clear expectations when it comes to competitiveness, affordability and returns. We have an attractive portfolio of new supply options ... [and] want to select the most competitive source of supply. LNG Canada is the most mature of these options.”

If built, the project would be massive, and eventually ship as much as 28 million tons a year of gas to markets in Asia, which currently account for 72 percent of global LNG demand with that amount projected to increase to 75 percent amid exorbitant Chinese gas demand. The project’s output would eventually make up around 10 percent of all global LNG supply

Due to its location on Canada’s west coast, the project’s shipping distance would be the shortest for LNG exports from North America to the Asia-Pacific region by several days, thereby ushering in more competition for U.S.-based terminals that have to traverse the longer routes from the Gulf Coast. Longer sailing distances for LNG vessels means more gas boil-off as well as other costs associated with extra days at sea.

In early July, Houston-based Civeo Corp was awarded a contract to supply temporary work camps at four locations along the Coastal GasLink pipeline from Dawson Creek, B.C., to the West Coast, on the condition that the LNG export terminal is built, according to a CBC report. However, Uhl said that the company is still doing its homework. Shell needs to know if the LNG Canada project will be resilient, generating positive free cash across a "range of commercial and energy transition scenarios,” she said. Related: Something Strange Is Happening In The Saudi Oil Patch

While many in the Canadian energy sector and even abroad were upbeat over Uhl’s statements, news broke on Friday that a jurisdictional challenge over the Coastal GasLink pipeline that would supply the proposed LNG Canada project in Kitimat had been issued.

More legal maneuvering

Michael Sawyer, who spent two decades as an environmental consultant in the oil and gas sector in Alberta, is arguing that TransCanada’s C$4.7bn Coastal GasLink pipeline should have faced a federal environmental review instead of a provincial one.

The National Energy Board (NEB) rejected a similar challenge by Sawyer against another LNG pipeline (TransCanada’s Prince Rupert Gas Transmission pipeline), the report added. But in a major legal win for opponents last year, the Federal Court of Appeal ruled the NEB had erred and must consider whether the pipeline fell under federal jurisdiction.

Sawyer has filed an application to the NEB to review the environmental jurisdiction over Coastal GasLink, potentially delaying construction for the LNG Canada project. Sawyer said he was not outright opposed to LNG, but claims it needs to be demonstrated that it is in the public interest, adding that this is not the case with the Coastal Gas Link situation. The NEB declined to comment over the case other than confirming it had received Sawyer’s request.

Missed opportunities

However, Sawyer’s request for further review is typical of the problems that have plagued Canada’s LNG development plans since its inception some seven years ago. While the U.S., Canada’s LNG competitor to the south, was pushing through a myriad of LNG project proposals and positioning itself to soon become the world’s third largest LNG importer by around 2020 with five major project operations and many more in the works, all of Canada's major LNG projects have been canceled indefinitely or postponed over government red tape, excessive regulation, disproportionate environmental and aboriginal resistance and what can arguably be called frivolous law suits, similar to Sawyer’s new case.

In essence, these problems have forced Canada to concede its earlier lead even though the country enjoys distance advantages, including an established conventional natural gas industry, political stability, geographic proximity to Asian markets and large reserves of shale gas that continue to be discovered. Related: War-Torn Yemen Restarts Oil Exports

Canada’s inability to field at least one major LNG project made the gas rich country not only lose out to the U.S., but it’s likely that Canada will not be able to ever catch up. In 2011, things look brighter, when at least 20 Canadian LNG project proposals, 14 in BC, three in Quebec, and one in Nova Scotia, were being considered - with a total proposed export capacity of 257 Million tons per annum (mtpa) of LNG (approximately 34 Billion cubic feet per day (Bcf/d) of natural gas). Canada’s only operational LNG terminal (an import terminal) is Canaport LNG’s regasification import terminal located in Saint John, New Brunswick.

Canada lost its best change of entering the global LNG export sector when Malaysian state-owned oil major Petronas finally pulled out of its proposed C$36bn Pacific Northwest LNG project in 2017 after years of legal, regulatory and environmental battles, in what media in the country lamented as Canada's inability to get things right. Dennis McConaghy, a former senior executive at TransCanada called the decision “a tragedy for Canada … a real condemnation of this country and the utterly unproductive entities in it that simply make any development virtually impossible.”

The Toronto-based Financial Post said at the time that one of the main reasons for the Petronas cancellation was “government mishandling.” Other LNG project proposals in BC have suffered similar fates, while both provincial and national politicians seem to blame each other.

An editorial in the Calgary Herald said that the death of the Petronas LNG project was a wakeup call for Canada, adding that it “should shake Canadian politicians and citizens out of their anti-energy stupor. However, if the Petronas cancellation was a wakeup call for Canada, it appears that nobody was listening.

By Tim Daiss for Oilprice.com

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  • Bill Simpson on August 07 2018 said:
    One of the things China is threatening to place tariffs on is LNG exports from the US into China. Should that happen, not much LNG will be going from the US to China as long as Trump is president.
    Don't expect a resolution of the US vs China struggle to occur anytime soon. Businessmen will swallow their pride to make money. Money is their god. Political leaders like Xi and Trump won't. They run on power and national pride, not on money, like businessmen do.
    The stock market roaring up no matter what Trump says now, means he has no incentive to change his attitude on tariffs. So expect the trade war to get worse, not be settled.
    Trump voters resent many foreigners because Trump has convinced them that foreigners are the reason why their standard of living has been stagnate for decades. His make America great again attitude is unlikely to change, and could persist for another 6 years, should he defy the odds again and once again win the electoral college vote in 2020. If the US economy and stock market keeps booming like it is today, he might win again. It might be the 'better the devil you know' who is putting money in your bank account choice. But if a recession hits before the spring of 2020, he is probably toast. And he is unlikely to win the popular vote, unless the Democrats run a member of a minority group, or another woman against him. Many men in the US will never vote for a woman 'boss' of the country. I'm not saying it is right, just that is how it is in the real world. That is one reason Hillary lost the Rust Belt factory area & the election. I suspect Joe Biden would have won, had he been the Democratic nominee.
    So building an LNG export facility for the China trade may be a bit risky. Of course, there are always bribes, like cash in some offshore haven, or a piece of the business at a very low price. Just watch out for former Marine Vietnam combat veteran, and FBI director, Robert Mueller.
  • Spades on August 07 2018 said:
    Inexpensive energy be it coal, oil, or LNG is the mother's milk of industrial prosperity. If the Chinese do not import US LNG then some other nation is happy to oblige and build the future of manufacturing in Asia. Corporations are leaving China as fast as you can say LNG tariff. Taxes, regulations, and transportation costs are lower in the USA. Repatriation of manufacturing can drive the Trump economy for the next sixteen years. Say hello to President Ivanka Trump.

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