LNG – Potential for dynamic impact on B.C. economic growth

By Leonard Melman

Minister Coleman Tours Northwest LNG Sites

As part of his northwest tour of LNG sites, Minister of Natural Gas Development Rich Coleman was able to view preliminary work at the Kitimat LNG site from the air. Photo credit: Flickr/Province of British Columbia.

It is no exaggeration to declare that the economic future of the province of British Columbia may be more dependent on developments within the world of natural gas than any other single factor.

British Columbia has already identified enormous reserves of the colourless, odourless gas; several billion dollars are currently being expended in developing and expanding those reserves, and tens of thousands of workers are presently employed within the industry.

However, a new and dynamic side to the natural gas equation has recently entered the picture in a big way, namely the conversion of natural gas from its normal gaseous state into liquefied natural gas (LNG) for trans-shipment to distant markets, particularly those in Asia where energy requirements are huge, while alternative means of supply are inadequate at best and nearing crisis levels at worst.

This conversion is necessary, as there is simply no viable method of shipping huge quantities of natural gas other than in a liquefied state.  In order to accomplish the conversion into LNG, plants known as “LNG Trains” must be constructed.  The process involves purification of the gas and then cooling to a temperature of -161 degrees Celsius.  LNG is then loaded on special vessels for shipment and, upon arrival at the final destination, the LNG is regasified.  Throughout the process, safety is a vital concern as natural gas in all its forms is exceedingly flammable.

One of the most important economic factors is the dynamic difference between pricing of natural gas in North America versus Asia.  In Canada and the USA, where supplies are abundant and growing dynamically, commodity pricing for natural gas hovers near $4 per million British Thermal Units (BTUs), but in Asia, where domestic supplies are minimal and demand is excessive, the price hovers near quadruple that amount.  Therefore, this price differential suggests an opportunity to make enormous profits — including substantial tax revenues for governments — by building a pipeline from B.C. natural gas fields to Prince Rupert and establishing LNG conversion facilities and advanced harbour capabilities in that community.

Speculation is abundant regarding the continuation of this vast pricing differential.  On the one hand, Asian demand for energy continues to grow rapidly and it appears alternatives to natural gas such as nuclear power, conventional petroleum fuels, and even renewable energy sources all encounter serious environmental or supply problems.  However, on the supply side, numerous new LNG terminals are being proposed in several nations which could mitigate the supply/demand balance in favour of adequate or even excess supply down the road, thereby reducing price pressures.

Thanks to its location directly on the Pacific Coast and its relative proximity to B.C.’s natural gas fields, Prince Rupert has indeed become the focus of attention when it comes to British Columbia’s LNG development.  Two companies have already received regulatory approval to proceed with LNG plans and several other applications appear to be in the works.

In 2011, Kitimat LNG was granted a license to export LNG from B.C., with Asia as the primary commercial target.  In granting the license, Canada`s National Energy Board noted, “…The board recognizes that forecast demand growth for LNG in the Asia pacific region provides a new opportunity for Canadian producers to diversify their export markets…”

Next, LNG Canada, a venture between Shell Canada Ltd. and three Asian partners, submitted a plan for environmental review to build both an LNG terminal at Kitimat and a natural gas pipeline from northeastern B.C. to the terminal facilities.  In the proposal, the company noted, “Project construction is expected to start in 2015…with construction of the first phase to be completed in 2019/20.  The life of the project is expected to be at least 25 years.”

The stakes for B.C. could be staggering.  Premier Christy Clark recently declared that should LNG expansion take place as projected, the province could be able to create a “prosperity fund” of sufficient size to entirely eliminate both the province’s governmental debt and its provincial sales tax as well.  Also, both commercial activities and job creation associated with both construction and operations could be enormous as well.

With stakes that vast placed upon the LNG table, developments within the industry bear the closest attention.

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