British Columbia natural gas industry being driven by LNG potential

Contributed by Gary Leach, executive director of SEPAC, Canada’s Oil and Gas Entrepreneurs

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The North American market for natural gas has been flooded with low-cost supply, primarily from shale basins in the U.S.  British Columbia’s natural gas is at the far end of the pipe when trying to compete in this continental market but fortunately the province is well positioned to serve the Pacific Rim economies with LNG exports.  The world’s largest market is Japan where demand for LNG is expected to grow as that nation reduces its reliance on nuclear energy.  China’s LNG demand is expected to rise five times by the end of the decade to become the world’s second largest market for LNG.  China is currently building 17 new LNG receiving terminals to boost its import capacity to 65 million tonnes per year.

This growing market has drawn significant Chinese, Malaysian, Korean, and Japanese investment to the Western Canadian natural gas industry.  However, B.C.’s competitors to supply Asian markets are not standing still.    The Australians currently have $200 billion in LNG projects on the drawing board (a scale of investment that rivals Alberta’s oil sands industry).  The Aussies aim to triple their export capacity to 60 million tonnes per year and climb from the fourth largest LNG exporter in the world to first place.   An American LNG export facility in Louisiana has recently signed a 20-year supply contract with a state-run Indian company.  Our neighbours in Alaska are realizing that the most-likely way to develop their large natural gas reserves is to export them as LNG from a Pacific coast shipping terminal rather than via pipeline through Alberta to the lower 48 states.  Even China, while continuing to be a major destination for LNG exports, will be investing billions of dollars to develop its own onshore shale gas resources.

The B.C. government has demonstrated that it understands the potential benefits to British Columbians by making LNG resource development a key economic policy goal.  Infrastructure support, including electric power supply from BC Hydro, will be important contributing factors in making these projects a reality.

While the LNG industry focuses on the Pacific Rim markets and is dominated by large producers such as Encana, Apache, and Shell, it cannot be denied that overall the industry in B.C. is suffering from low natural gas prices.  For junior and intermediate producers operating in B.C. (about 50 are SEPAC members) these are challenging times and the drilling and land sales statistics in the province reflect this.  Lower levels of activity of course impact the drilling and service sector companies based in B.C.  SEPAC has recommended to the B.C. government that it could improve the attractiveness of investment in the province by adjusting the deep gas drilling credit to give greater recognition to current well completion methods, particularly the large expense associated with multi-stage fracturing.

British Columbia has great potential as a natural gas producer.  SEPAC will continue to advocate for policies that support a competitive investment climate on royalties, taxes, and regulation so that this tremendous potential can be realized for the benefit of all British Columbians.

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