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LNG bulls take on bears BC government leaders deliver upbeat message on industry outlook despite falling LNG prices; Clark insists demand will keep growing GARY PARK For Petroleum News
It was a sight rarely seen in British Columbia, not even in the provincial legislature.
Premier Christy Clark, Finance Minister Mike de Jong and Natural Gas Development Minister Rich Coleman - the three heavyweights in the Liberal government administration - showed up in force at the province’s third annual LNG conference to deliver a common refrain in speeches and interviews.
They brushed off the critics and doubters in telling 3,500 business, government and aboriginal leader delegates and 300 exhibitors to pay little heed to those who argue that a troubled energy outlook and an LNG supply gut will slam the door on British Columbia’s hopes of launching an LNG industry.
Clark made it clear she will not back down.
“If you’re not from British Columbia, you won’t know that I’m always accused by my political opponents of being an optimist,” she said. “It’s true. I’m an optimist. I’m also a hard worker, because I know that optimism doesn’t get you anywhere unless you’re willing to roll up your sleeves and get the work done.”
Clark was adamant that global energy demand will keep growing, with LNG playing a prominent role as a cleaner alternative to coal and oil.
She also pointed to her government’s 61 agreements with 28 First Nations along proposed gas pipeline routes and its investment in environmental stewardship and job skills programs for aboriginals as further proof that LNG has much of the essential backing it needs to go ahead.
Clark said LNG “truly does represent a chance to redress historical wrongs, to change the course of post-colonial history and make sure that First Nations are fully included in economic growth.”
Conditional approval Just hours after Clark’s speech she received a solid endorsement when the Squamish Nation Council granted conditional approval to the Woodfibre LNG project on Howe Sound north of Vancouver, saying its environmental concerns can be managed if proper technology and controls are in place.
Squamish National Chief Ian Campbell said the next step is for technical analysts to “prove that the system won’t have an adverse impact.”
The contentious project, privately owned by Singapore-based RGE Pte., and controlled by Indonesian businessman Sukanto Tanoto, carries a price tag of C$1.6 billion to convert an old pulp operation to export 2.1 million metric tons a year of LNG.
Campbell said Clark’s comments are proof that First Nations are finally being treated as partners rather than just stakeholders in resource projects, but cautioned that his nation does not yet fully support LNG.
“We’ve largely been alienated and marginalized from any meaningful decision-making or economic participation, or taking into account our thousands of years of stewardship of our lands and resources,” he said.
Long-term confidence On the wider front, de Jong and Coleman claimed that British Columbia is on the verge of taking the final steps into the LNG market.
De Jong said backers of the major projects planned for the British Columbia coast are confident about the long-term outlook for LNG.
“There is an LNG market out there and there will be cycles in that market,” he said. “Proponents are telling us that the sooner they can be up and running the sooner they, British Columbians and Canadians will enjoy the benefits of this industry.”
He said that since 2012 “we have come a long way ... and we are poised to see the final steps taken. Every step of the way, there have been detractors and naysayers and people who have dismissed the opportunities.”
Coleman, also British Columbia’s deputy premier, said he has met with a number of senior company executives “who are still saying there is a market (for their LNG) and British Columbia is the right place to be.”
‘Cost shake out’ catalyst Consultants Wood Mackenzie have estimated an LNG glut is likely to hang over the market until at least 2022, but ExxonMobil executive Steve Lidisky told the conference that although LNG prices are being driven down, affecting project economics and the timeline on investment decisions, there are benefits from these trends.
“The dramatic drop in energy prices provides a catalyst for a cost shake out” in an industry that has seen cost escalation for projects climb out of control, said Lidisky, president of ExxonMobil LNG Market Development, while noting that 140 million metric tons per day of LNG supply is under construction globally, with only one-third tied to long-term contracts.
Andy Caditz, chief executive officer of LNG Canada, the Shell-Canada led project, said British Columbia still holds a long-term advantage, but the industry will still have to work “incredibly hard” over the next three years to lower the cost of supply.
“The situation that world LNG faces right now is quite similar to the 1990s, when there was a supply overhang,” he said. “Only the most competitive, in terms of cost of supply and the projects which are best connected to markets will survive.”
Coleman still positive Coleman, who is not known for taking the low road on any issue, said the drop in LNG prices has yet to alter his expectations that British Columbia is “going to be successful in LNG. We’ve done the fundamentals and the work on the competitive nature of (British Columbia LNG) globally and we have significant projects moving towards final investment decisions.”
He wouldn’t even rule out the government’s goal of having five LNG plants in operation by 2020, depending on the size of the plants and on construction starting no later than 2017.
Widely seen as the frontrunner among the majors in British Columbia, the C$36 billion Petronas-led Pacific NorthWest LNG is ready to enter the construction phase in 2016 “provided it receives final federal environmental approvals and final permits,” said project President Michael Culbert.
He said First Nations legal action to resolve ownership of the proposed C$11.4 billion export terminal on Lelu Island near Prince Rupert will not be a showstopper.
“There’s a question as to who the landlord might be,” Culbert said. “When that answer is clear, we will then (reach an) agreement and pay the landlord appropriately.”
He said the “vocal minority sometimes is a very small group of people and in most cases the silent majority is indeed silent.”
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