LNG exports from the West Coast: Canada’s new energy centre?

 

Coral_Energy_LNG_tankerBritish Columbia, second only to Alberta in natural gas production, is positioning itself to be at the heart of Canada’s efforts to develop and export shale gas reserves. This will require moving gas from the northeastern part of the province to facilities on the coast. Once there, the gas would be converted to liquefied natural gas (LNG) and shipped via tanker to higher priced markets in Asia.

Although Canada currently has no operational LNG export terminals, commercial interest in exporting LNG has grown in recent years as abundant supplies of shale gas are becoming available as a result of technological advances in horizontal drilling and multi-stage hydraulic fracturing.

This has led to sustained low natural gas prices and a game-changing shift as North America is poised to become a natural gas exporting region. Canada and the United States are presently the only two countries in the world with commercial shale gas production, though other countries have considerable shale gas reserves.

In the United States, control of natural gas exports goes back to the Natural Gas Act of 1938. The licensing process to export to a country with which the U.S. has signed a free trade agreement is fairly easy. On the contrary, the review process is lengthy and more complicated for a non-FTA country license and only a handful have been granted under the Obama administration. Canada is well positioned to enter the LNG export game as it does not have such restrictions in place.

On December 18, 2013, the National Energy Board granted four LNG export licenses in B.C., bringing the total to seven approved LNG projects in the province. The projects are concentrated in the Kitimat and Prince Rupert areas.

Figure 1: Map of proposed LNG export region (click to enlarge)

Source:http://www.beatingtheindex.com/wordpress/wp-content/uploads/2013/06/map_bc_lng_full.jpg

Although commercial interest is increasing at a time when Canada risks falling behind competitors who are further ahead, namely the United States, many experts agree that fewer than five (and possibly zero) terminals would ever be built in Canada since high capital costs, competition, and skilled labour shortages are obstacles that will stymie development.

To date, LNG project proponents have held off making final investment decisions partly on account of uncertainty surrounding the fiscal regime in the province. Last month the B.C. government unveiled a two-tier tax regime, which helped provide long sought-after certainty for industry even though the tax regime has not been finalized.

Profits from LNG projects will be taxed at an initial rate of 1.5 percent, with rates to go as high as seven percent after companies have recovered costs associated with building the shipping terminals. The new regime is in line with other rival jurisdictions and the government will seek approval of the rates by the legislature by the end of 2014.

Although tax rates are just one component of project costs, the proposed tax regime puts companies one step closer to making viable investment decisions on LNG export projects in B.C. As Sebasitan Gault of Alberta Oil Magazine noted, “The center of gravity of Canada’s energy industry continues a westward shift into British Columbia…”

Written by Jeffrey Phillips

jphillips@dawsonstrat.com

 

 

Tags: , ,

Comments are closed.