It’s becoming a buyer’s market globally for LNG, energy conference hears

By Lauren Krugel, The Canadian Press

CALGARY – The global liquefied natural gas market is shifting in favour of buyers across the Pacific, making life more complicated for firms already struggling with the economics of exporting the fuel from the West Coast, an energy conference heard Wednesday.

“You’ve kind of seen the dynamics flip around a little bit. I think it’s been a seller’s market for a while and now I think it’s a buyer’s market,” said Don Althoff, CEO of Veresen Inc., a Calgary-based company planning on shipping gas from Coos Bay, Ore.

“There’s actually more projects chasing buyers than there currently are buyers of the product.”

More than a dozen projects are in the works that would pipe gas from northeastern B.C. to the coast, where it would be chilled into a liquid state and shipped abroad by tanker. They’re competing for global market share with players on the U.S. Gulf Coast and in Australia, among other places, and seeing customers exert more pressure when it comes to pricing.

Customers are asking: “Can I really buy 20 years worth of gas at a reasonable price?” said Althoff.

It’s unlikely more than a handful of the West Coast projects will go ahead and even some of the front-runners are having a hard time with the economics of their multibillion-dollar proposals.

Last week, Malaysian state-owned firm Petronas said its proposed LNG terminal near Prince Rupert, B.C., could be delayed by 10 to 15 years unless it gets assurances by month’s end that taxes and regulatory delays won’t make the project uneconomical. It aims to make a final investment decision by the end of this year.

Talks with the B.C. government are underway. Ken Pischke, a senior vice-president with the Canadian subsidiary of Petronas, said he’s hoping the province won’t pass up a “world-class opportunity.”

“They have to really take it seriously and understand,” the Progress Energy Canada Ltd. executive said in an interview.

“A lot of these multinationals have a lot of opportunities to invest all over the world. If this project isn’t competitive, there’s other projects that are.”

Petronas has plans to spend “tens and tens of billions” of dollars in Canada, about two-thirds of which is meant to get the gas out of the ground in northeastern B.C. where Progress is among the biggest landholders. The LNG terminal itself is currently expected to cost between $10 billion and $12 billion.

Bruce Borwick, vice-president at Woodfibre LNG, said there are myriad issues that must be worked out with government and “at this point, we’re not there.”

The Woodfibre project would be built in Squamish, B.C., at a much smaller scale than the Petronas-led project.

“Projects are trying to determine the tax implications of not only the LNG tax that’s being proposed and going to legislation next week (but) the impact of the provincial sales tax, the provincial and federal corporate tax structure,” said Borwick.

“And there’s a number of other hidden tariffs that are being proposed through the B.C. government that really are making it difficult for these projects to fully understand how you can be competitive; how all the pieces lie together so that when you can get your downstream contracts done, get your project financing done and find out what kind of market is at the end of the line to make a 25-40 year commitment. We’re still struggling with that.”

A report by the Conference Board of Canada on Wednesday highlighted the urgency of getting vast supplies of natural gas from northeastern B.C. to markets outside of North America.

As the United States pumps more and more gas from its own fields, the room for Canadian gas in that marketplace is shrinking.

That’s already had a “sharply negative” impact on the industry, which is expected to book revenues this year 69 per cent lower than they were in 2005, the Conference Board said, adding that jobs tied to natural gas this year are expected to drop below 20,000 from 30,000 nine years ago.

And the picture is not expected to get any brighter, Conference Board economist Michael Shaw wrote in the report.

Unusually cold weather boosted North American natural gas prices last winter as inventories were drawn down for home heating, but the temporarily higher prices spurred drilling activity in the U.S., quickly restoring storage levels and deflating prices.

The long-term answer, Shaw wrote, is to export the gas to new markets as LNG.

“Industry and governments will have to move quickly to define the fiscal framework surrounding LNG taxes, resolve labour supply issues, gain local community support and avoid the cost overruns that have plagued energy projects across Western Canada,” the report said.

“With the B.C. government expected to announce the LNG tax framework this month, government and industry are taking the necessary steps to help define the industry’s future. Further work will have to be done, but LNG and global sales do provide the Canadian natural gas industry with an opportunity to forge a consistent and predictable growth path.”

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