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BC gets fresh dose of LNG hope; TransCanada counts on Petronas
From its ringside seat, TransCanada is confident that the British Columbia government has emerged victorious from its battle with the industry over LNG taxes and will secure a final investment decision in December from the mercurial Petronas to proceed with its Pacific NorthWest project, company executives told analysts Nov. 19.
Alex Pourbaix, a TransCanada executive vice president, said the big uncertainty facing LNG proponents has been related to the royalty the provincial government was planning to impose.
“From my perspective, the announcement by the British Columbia government on the royalty was well within the reasonable expectations of the developers we’re involved with,” he said. “That was a pretty good outcome.
“As a result I think that issue has been taken away,” Pourbaix said, suggesting that the new challenge for the proponents will be whether the overall cost of the projects can “deliver adequate netbacks.”
He said TransCanada’s partners in four pipeline proposals - notably the Prince Rupert Gas Transmission line to deliver up to 3.6 billion cubic feet per day to Malaysia’s Petronas and the Coastal GasLink line to transport 4 bcf per day to the Shell Canada-operated LNG Canada facility - “seem very committed” to their projects.
“I think Petronas is deadly serious to make a (final investment) decision around the end of the year, so that gives you some comfort that they feel pretty good about the regulatory framework.”
Chief Executive Officer Russ Girling said that although TransCanada is not directly involved in discussions between the LNG players and the Canadian government on two issues - accelerated depreciation for the projects and a labor policy to meet construction needs - the government seems to be “doing its best to address” these matters.
His hope is that the government, because of the high priority it gives to LNG, will deploy the resources and people needed to ensure that the projects are able to generate economic benefits for all Canadians.
Doubts persist on economics But doubts persist over the economics of producing and shipping LNG from the British Columbia coast, with the International Energy Agency estimating those costs could be greater than some insiders have projected and could place Canada second only to Australia on the cost scale.
The IEA said exporting LNG from Canada could reach US$13-$14 per million British thermal units, US$3 above previous estimates and surpassing the number for exports from the United States by US$1.80 to reach markets in northeastern Asia and US$3.60 for shipments to Europe.
However, that prospect does not deter the British Columbia LNG Developers Alliance, whose membership increased to seven this month with the significant addition of ExxonMobil.
Alliance President David Keane told the Voice of B.C. on Shaw TV that “there will be an LNG industry in B.C. It will provide long-term economic benefits for thousands of British Columbians for decades to come.”
Even so, in contrast to TransCanada’s bullish view, Keane said there are still uncertainties around what the LNG tax will include, what municipal taxes will be imposed and who will pay for infrastructure needs.
He also said the British Columbia government has yet to set targets or disclose regulations for greenhouse gas emissions, including how companies could purchase offsets when they exceed targeted greenhouse gas levels or how they could invest in a technology fund.
Keane noted that LNG faces considerable technical and financial complexities, but he did not identify First Nations as a major obstacle, suggesting instead that those communities would be potential partners and supporters of LNG development, in return for securing “long-term, real benefits” along with assurances that the projects will be operated in an environmentally responsible and safe manner.
Nisga’a Nation agreement In a rare show of aboriginal cooperation, the Nisga’a Nation’s governing body signed a C$6 million agreement Nov. 20 with the province covering job training and environmental protection that will allow the Prince Rupert pipeline to cross 60 miles of Nisga’a territory. There is already a pact between the First Nation and TransCanada.
Nisga’a President Mitchell Stevens said his community strongly supports LNG development and hopes to secure a partner to build its own LNG facility.
But Pacific NorthWest still faces opposition from four First Nations to the chosen location for its terminal near Prince Rupert, although British Columbia Aboriginal Affairs Minister John Rustad said he is optimistic those communities will eventually support the project.
Keane identified the United States as Canada’s chief rival, now that the U.S. is reducing its consumption of Canadian gas and taking its own steps to export LNG by utilizing existing pipeline and storage infrastructure.
On the upside, he argued that LNG buyers will not want to confine themselves to supplies from the U.S., Australia, East Africa or Russia, especially given Canada’s solid record as a business partner.
However, he backed away from predicting when even one of 18 proposed LNG facilities might be up and running in British Columbia.
In a statement issued Nov. 19, Keane said his alliance is “committed to working with the provincial and federal governments in developing a regulatory and fiscal framework that sets the right conditions in place to establish a globally competitive and thriving LNG sector in B.C.”
Peter Tertzakian, chief energy economist at ARC Financial, wrote in the Globe and Mail that despite the efforts by governments, regulators, industry and other stakeholders to “move things forward ... it’s going to take longer than we think, maybe years, not months.”
He said the “macro environment is suddenly more difficult and there is a lot of lingering uncertainty.”
- Gary Park
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