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The LNG Momentum

$40-billion projects are no small chunks of capital


There is strong global demand for liquefied natural gas (LNG), and the timing for Canada to be a world supplier is giving the much talked (and argued) about Canadian LNG potential new momentum.

Simplistically, LNG plants take natural gas and liquefy it so it can be put on tankers and exported. Once it arrives at its destination, it is regasified and sold in its original state.

The LNG market is huge, and getting bigger. Global natural gas consumption is set to grow by 45 per cent over the next 25 years, according to the Canadian Energy Research Institute. Most of the growth will likely come from Asia, Africa, Latin America and the Middle East.

The most recent Shell LNG Outlook, the industry-respected survey which tracks LNG trends, shows that, this year, the world LNG supply is set to rise by 35 million tonnes and world demand for LNG is expected to exceed 384 million tonnes by 2020.

Canadian energy experts and industry leaders share guarded positivity and cautious optimism about momentum for Canada to become a global LNG player. While the signs and potential are encouraging, there’s also consensus that Canada must deal with various speed bumps if it hopes to move from talking the LNG talk to walking the LNG walk.

“A key reason why we are shifting to being LNG exporters is because we have low cost, abundant supply,” says Jackie Forrest, who analyzes emerging and strategic energy trends as director of research at the ARC Energy Research Institute. “By most estimates, shale gas resource could last 100 years at current consumption levels. A little-known fact is that the production growth from Western Canada’s natural gas shale plays is comparable to that of the oilsands. In the past 15 years or so, western Canadian shale gas and associated liquids grew by about 700,000 barrels of oil (equivalent) per day, while the oilsands grew by 800,000 barrels per day.”

There are some positive indicators about Canada’s potential to become a global supplier. And the most crucial factor has absolutely nothing to do with the industry and business strategy of production and shipping to markets.

By fluke of nature and geography, Canada is resource rich when it comes to natural gas. “We have a tremendous supply of natural gas,” says Pat Ward, CEO of Calgary’s Painted Pony Energy. “We have way more energy than we can ever consume for domestic use. It’s primarily in the Montney play, which is one of the largest gas fields in the world.”

Susannah Pierce, director of corporate affairs with LNG Canada, adds, “Today, demand for LNG is close to 300 MTPA with LNG under construction bringing that up by another 50 MTPA. By 2030, supply will be closer to 320 MTPA. The challenging fact is that demand is predicted to be at over 500 MTPA.”

In addition to the vast supply of available natural gas in Canada, she underscores other LNG positives. “Canada has a number of distinct advantages, especially for supplying the high demand of Asian markets. We are only eight to 10 sailing days away, unlike our competitors in the U.S. Gulf Coast and we don’t need to transit through the Panama Canal. It’s also vitally important that Canada has a supply of highly-qualified skilled labour, locally, within British Columbia and within Canada.”

The world’s timing is also working in Canada’s favour. Global attitudes about sustainability and reducing greenhouse gas (GHG) emissions, like the global action sparked by the 2016 Paris Agreement, is exponentially spiking interest and demand for LNG as a low cost and viable option.

“Demand continues to grow, not only in North America,” Forrest points out, “but there is growing and big global opportunity as more countries move away from high-carbon coal for power generation as well as other uses like home heating. LNG has played an important role in the global energy system over the last few decades, as an increasing number of countries turn to natural gas to meet their growing energy needs.”

The report also illustrates the critical role natural gas can play in providing cleaner energy to the world. According to world trends and stats, the push for cleaner-burning fuel in several Asian markets is driving rapid growth LNG use and was the prime factor for 2018 global demand growing to 319 million tonnes. Chinese LNG imports has helped with the Chinese success to improve air quality in some of its biggest cities over the last few years and make the air cleaner for millions of people.

Most energy experts agree that one of the several challenges for Canada being sluggish when it comes to LNG output, is being outpaced by the multifaceted U.S. factor.

About 10 years ago, at the start of what the industry sometimes calls the shale gas revolution, the U.S. aggressively set a course to be increasingly LNG self-sufficient while Canada started losing its most important and only natural gas customer. Today the U.S. is practically LNG self-sufficient and pipeline exports from Canada to the U.S. have virtually dried up.

Forrest acknowledges the U.S. factor and some Canadian disadvantages it creates.

“Compared to the U.S., Canada has been slow with more complex projects. Our challenge is more complicated. Canada has mostly greenfield projects in remote areas that take longer and have more complex regulatory requirements.

“The Americans have more brownfield sites with access to gas at liquid trading hubs that are in close proximity and have been faster to build. In Canada we need to build upstream wells, pipelines that are 700-900 kilometres long and liquefaction facilities in remote locations on our west coast.”

She admits Canada has a much more complicated regulatory process, without the regulation luxury of building on mostly brownfield sites.

Painted Pony Energy CEO Pat Ward echoes the realistic frustration. “We are dealing with incessant delays due to regulatory disagreements. The energy industry used to go with consensus. We don’t, anymore. The fact is, Canada has excessive timelines and barriers to getting approval. The U.S. regulatory process works much more efficiently. Ours? Not so much.

“For the here and now, it is what it is. Current LNG demand and consumption is 43 bcf a day, and expected to rise to 57 bcf in the next five years. That’s a 34 per cent increase. The U.S. will be exporting 8.2 bcf by the end of this year. Canada? Zero!

“The good Canadian news is that there’s hope. It’s kind of like the distant flag on a 550-foot hole. But it is happening.”

He mentions some indicators of positive Canadian momentum – despite the constant noise from eco groups and some media, creating a public perception that LNG is merely a Canadian controversy and that LNG plans are not going ahead. He cites the recent go-ahead of the $40-billion Shell-led, joint venture project in Kitimat that includes a gas liquefaction plant. “And there are two other projects that may be a couple of years out but going ahead in the not too distant future.

“The industry and investment reality is that $40-billion projects are no small chunks of capital.”

It may not be happening at the pace that some prefer, but Canadian LNG momentum has begun. And the push for exporting LNG could soon boost Canadian natural gas production and create significant investment, jobs and economic growth.