Death of B.C.’s nascent LNG industry ‘greatly exaggerated,’ says head of LNG alliance

Despite falling oil prices and market uncertainty, the start-up of a functioning LNG industry in B.C. is a matter of when, not if, according to David Keane, president of the B.C. LNG Alliance.

In a keynote address March 3 to the Canadian Energy Research Institute’s natural gas conference, he said there could be a final investment decision taken this year.

“LNG is not an if, but a when,” Keane said. “LNG is a nation-building opportunity with benefits that go well beyond British Columbia to include the entire country.”

He added that he’s not alarmed by the current volatility in the energy markets.

“We are concerned, yes, but not alarmed,” Keane said. “From our perspective, the volatility masks a tremendous opportunity in British Columbia.

“The province is well positioned for LNG growth; that’s why companies have already made considerable investments as part of their pre-final investment decision work.”

Given the size and scope of the proposed projects, the LNG proponents will take investment decisions on a longer term pricing horizon, he noted.

“[Decision are based on] a pricing horizon that goes well beyond the impact on the spot price of crude oil,” Keane said. LNG prices are traditionally linked to oil.

Over the longer term, Asian economies are expected to continue to grow, Keane said.

“When comparing supply and demand, there will be about a 120-million-tonne global LNG supply gap by 2025,” he told the conference. “This means two things: first, B.C’s LNG industry may not meet the final investment decision (FID) targets put in place by those who focus on federal or provincial political cycles.

“Second, however, it does mean that over the longer term the industry is well positioned for growth in British Columbia.”

Keane added: “I expect that [LNG] future will start to become even clearer through the course of 2015 as some companies move toward financial investment decisions.

“I believe we may very well see a final investment decision made this year.”

Malaysian energy firm PETRONAS said Monday (March 2) it expects to make a FID on its $11 billion LNG export terminal in British Columbia by June, according to a Reuters report, after postponing the decision late last year.

“The buyers of LNG are not going to want to put all their risk in a single basket,” he said. “We have a tremendous opportunity to capture a sizable portion of that supply/demand.”

Keane noted that his group is consulting with the province on implementation of LNG tax regulations, working with members to assess potential impacts of impending greenhouse gas regulations and participating on the premier’s working group on skills training.

“We want to ensure that the offset markets are broader than just British Columbia to provide companies with the required flexibility that they will need going forward,” Keane said.

He praised changes to the capital cost allowance for LNG facilities by the federal government.

The federal government last month announced new Capital Cost Allowance (CCA) rates designed to boost LNG investment. Under the rules, companies building new LNG terminals will be able to deduct capital costs at a faster rate, allowing them to defer tax payments and recoup investment more quickly.

“This tax change will improve our competitive position globally and encourage the development of LNG in Canada,” Keane said. “This is not a tax break, this is not corporate welfare.

“The industry’s tax liability doesn’t change; what changes is the speed with which the industry is able to recoup its capital investment.”

Daily Oil Bulletin