Unless the British Columbia government can overcome regulatory foot dragging in approving LNG projects it risks losing more than C$20 billion a year in export revenues, says a new study by the Fraser Institute, an independent Canadian public policy think-tank.
The study, entitled LNG Exports from British Columbia: The Cost of Regulatory Delay, said that although not all delays in implementing capital investment plans are regulatory in nature that are the one aspect that policy makers along with First Nations can tackle.
And the delays imposed on LNG investments in British Columbia, represented by lost revenues, could translate into C$22.5 billion in 2020, rising to C$24.8 billion in 2025.
However, the report, co-authored by Benjamin Zycher and Kenneth Green, conceded that planning, financing, contracting and other private-sector delays and complex capital investments are other realities that act as a drag on the industry.
But the regulatory stalling on project approvals would likely see British Columbia lose 9.5 percent of its current gross domestic product, the study said.
“The level of details we are getting into is actually creating a challenge for our modellers,” Michael Culbert, president of the Petronas-operated Pacific NorthWest LNG venture, told a business audience in Toronto.
He said the Canadian Environmental Assessment Agency has finally acknowledged that it has extended its envelope “a touch too far.”
Green said that although the regulatory regime is not entirely to blame for the delays, the Fraser Institute focused on the agencies that have the final say on projects.
“Some of the delays are also due to energy companies dealing with multiple projects and multiple timelines and different challenges,” he said. “Some of it is based on resistance of First Nations and some on environmental and local opposition.”
BC could have been largest
The Fraser Institute has estimated that British Columbia, because of its natural gas resources and proximity to Asian markets, could have been the largest LNG exporter in the medium term - ahead of Australia, Qatar and the United States - if projects that have already received export permits from the National Energy Board had proceeded.
Green said the question now is how quickly British Columbia can reopen the window and offer competitive marketing to the industry, arguing that “2020 is not the end of growth, it’s the beginning of intense competition.”
The study estimated that, under conservative assumptions, British Columbia’s export capacity could have accounted for 42 percent to 74 percent of Asia-Pacific imports of LNG in 2020.
But the International Energy Agency doubts, because of regulatory delays, that any Canadian LNG project will be on stream by 2020.
The magnitude of the projected lost revenues “should encourage policymakers to streamline the regulatory process so that British Columbia is able to make use of its large natural gas resources,” the study said.
The Fraser Institute findings do even more to dent the dreams of British Columbia Premier Christy Clark that her province could attract C$1 trillion in LNG investment over 30 years and allow the province to build a C$100 billion Prosperity Fund from revenues.
AltaCorp more optimistic
But not everyone shares a gloomy outlook. A report by AltaCorp Capital took issue in mid-September with bearish predictions that British Columbia may completely miss the chance to build LNG terminals on its coast.
Instead, AltaCorp predicts that four export facilities will receive the green light in coming years, starting with the C$500 million Douglas Channel project operated by AltaGas, starting with a final investment decision this year and coming on stream in 2018.
AltaCorp said that next in line will be the major undertakings led by Petronas, Shell Canada and ExxonMobil, all of which could make corporate sanctioning decisions over the next three years.
AltaCorp analyst Dan Benner said that if oil prices remain at their present level or get even weaker that will create a “perfect environment” for LNG proponents to tap the labor “talent pool.”
