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A dose of LNG reality; economist says BC revenue projections high
As fast as British Columbia gets ready to celebrate an LNG success it seems someone pricks the party balloon.
On the same day Shell Canada upped its stake in the LNG Canada project to 50 percent from 40 percent in its joint venture with Asian giants PetroChina, Mitsubishi and Korea Gas, strengthening the hopes of a final investment decision within 18 to 24 months, a Canadian research organization dumped lukewarm water on the province’s grand dreams.
Marc Lee, a senior economist with the Canadian Center for Policy Alternatives, said the projections that LNG tax revenues could tally C$100 billion over 30 years, wiping out the province’s debt and building a prosperity fund, is at best a long shot.
“At more plausible Asian prices (for LNG) and production levels, combined royalties and LNG taxes would likely be much smaller,” he said in a report.
Lee cautioned that government costs covering regulatory processes, infrastructure, public services and environmental protection had to be weighed alongside revenues.
He said infrastructure needs alone would “greatly eat into the gap between Asian and North American natural gas prices, as a result of which small declines in Asian LNG prices would take a large chunk out of profit margins and thus government revenues.”
Adding to those doubts, there is the likely revival of nuclear power generation in Japan and South Korea, tough competition from other LNG-exporting countries and the likelihood that Asian importers will form a “buyers club” to rein in LNG prices.
Lower revenues Lee predicted that these and other developments could lower British Columbia’s C$100 billion target to a low as C$12 billion and as high as C$48 billion.
The report also challenged the British Columbia government’s lofty goal of C$45 billion a year from the special LNG income tax announced in this year’s provincial budget, suggesting it is more likely to plummet to C$200 million to C$600 million.
Lee also said one of the big unknowns could be the cost of dealing with greenhouse gas emissions that would be emitted from an LNG industry, especially if an international treaty to curb carbon emissions is ratified.
He said the decision by Shell Canada and its partners to formally incorporate their LNG Canada joint venture is welcome news, even though a final investment t decision on the C$12 billion project is far from certain.
Companies ‘looking long and hard’ Lee said the four companies are “still looking long and hard at whether their investment will deliver appropriate returns.”
LNG Canada Chief Executive Officer Andy Calitz said the new corporate pact is an important milestone because it creates an operating entity to hire prospective suppliers and contractors.
He noted that the Asian partners had the option to quit the venture, but instead chose to stick with supporting LNG exports from British Columbia.
“They all very clearly, very demonstrably, very specifically stayed with project,” he said.
Calitz said that of every 100 shipments by LNG Canada, 15 would go to Korea Gas, 15 to Mitsubishi, 20 to PetroChina and 59 to Shell.
He said that allowing for front-end engineering, environmental assessment and consultations with First Nations and assuming corporate sanctioning within 24 months, construction should start no later than early 2016, allowing first shipments by late 2020, about two years behind the Pacific NorthWest LNG project.
British Columbia Premier Christy Clark, determined to keep her foot to the gas pedal, is leading a provincial delegation to Malaysia, Singapore and Hong Kong on her latest effort to sell the virtues of doing LNG business with British Columbia.
—Gary Park
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