Canada did not miss LNG boat: LNG Canada CEO

Energy, Mines and Petroleum Minister Michelle Mungall confirms NDP government supports LNG industry

'I actually believe that B.C. will have an LNG industry' – LNG Canada CEO Andy Calitz

A $40 billion liquefied natural gas plant proposed for Kitimat is still very much alive, says the CEO of LNG Canada, but senior governments may need to address tax competitiveness before Shell and its three partners can make a final investment decision.

“I actually believe that B.C. will have an LNG industry, that there is societal support for an LNG industry from B.C. and … I believe specifically the LNG project can and will happen in B.C.” Andy Calitz told Business in Vancouver, following an address to the Greater Vancouver Board of Trade (GVBOT) Friday, September 22.

Michelle Mungall, the NDP’s new minister of Energy, Mines and Petroleum Resources, who met one-on-one with Calitz earlier in the day, seemed to share Calitz’s optimism, and said her government is considering some of the concerns the consortium – Shell, Mitsubishi, KOGAS and PetroChina – have expressed about moving forward.

"Our position has always been supportive of LNG, as long as the industry meets our four conditions," Mungall told reporters in a scrum after Calitz's address. "And what I think is important to remember is that conditions are not roadblocks, they're roadmaps."

A current glut of LNG on the market, much of it from new LNG plants in Australia, have whittled global LNG prices in half from what they were in 2013, when many of the big players, like Shell, were entering regulatory processes.

But demand continues to grow in Asia, and there are new LNG markets developing in India, Indonesia and Pakistan, meaning there will eventually be a demand for more LNG plants.

But Shell, which has LNG projects on the drawing board in practically every time zone, has made it clear that it will only invest in projects that are competitive.

“We do need to address, on a broader scale, what’s going on in terms of the global marketplace and (the question): is B.C. competitive in this global marketplace as it stands right now?” Mungall said.

“And that’s a very good question and one that we’re actually answering. I’ve directed my ministry to look into that and to begin to work with First Nations, local communities, as well as the industry.”

Following the announcement that two other major LNG projects proposed for Prince Rupert had been cancelled not long after the new NDP government took power – Petronas’ Pacific NorthWest LNG and Nexen’s Aurora LNG – there was considerable speculation that Canada had missed the boat on an LNG industry.

“I don’t believe that Canada has missed that boat,” Calitz told GVBOT members.

Unlike the Petronas and Nexen projects, both the LNG Canada plant itself and associated Coastal GasLink natural gas pipeline are fully permitted. The project has also had the support of First Nations in the Kitimat region, notably the Haisla, whereas some First Nations in Prince Rupert area were opposed to the project.

Calitz said the Petronas and Nexen decisions have both positive and negative implications for the LNG Canada project.

“It strengthened the voices of both the critics and naysayers that say there will be no LNG from B.C. or there should be no LNG from B.C.,” Calitz said.

Among those naysayers is Green Party Leader Andrew Weaver.

On the positive side, Calitz said that 40 contractors that are bidding on contracts to build the plant now have less competitive for scarce skilled labour.

Calitz reiterated what is often cited as two competitive advantages that B.C. has as a potential LNG developer – proximity to Asian markets and one of the largest most productive natural gas plays in the world – the Montney in northeastern B.C.

The biggest obstacle is current market conditions, although Shell executives have been more optimistic than many analysts when it comes to estimating how soon a current glut of LNG will balance out with an ever growing global demand for LNG.

Earlier this year, Shell divested itself of some of its natural gas assets in B.C., which raises the question of whether LNG Canada would have enough upstream supply for the two-train LNG plant the consortium wants to build in Kitimat. Calitz pointed out that Shell is not the only partner in the consortium with natural gas holdings in B.C.

“The four partners in LNG Canada…have enough gas supply to keep the energy trains full,” he said.

In addition to meeting one-on-one with Mungall last week, Calitz said he planned to meet with Premier John Horgan next month.

Asked if the Green Party’s opposition to the LNG industry concerned him, Calitz said it didn’t and pointed out that the official opposition – the Liberals – are fully supportive of an LNG industry.

“The combination of the NDP (MLAs) and Liberal (MLAs) who support an LNG project and a new mega industry for British Columbia is good enough for me to move forward in British Columbia,” Calitz said.

The biggest hurdle for the project may be the question of tax competitiveness. The new NDP government plans to raise B.C.’s carbon tax from $30 per tonne to $35 per tonne, starting in the spring.

Calitz made it clear that it’s not carbon taxes per se that are the big concern. Rather, it’s the full suite of taxes, from the municipal to federal level, that need to be considered.

“There should be a tax on carbon,” Calitz said. “It’s not the first increment of $5 per tonne that scares me, but somehow we need an indication from the government as to where that will go.

“We need the government of British Columbia specifically, but also the federal government, to take a last look at the fiscal tax competitiveness of Canada for an LNG project.

“This is an important but also a sensitive matter. We do not seek any form of subsidy at all. We pay our full tax burden. One of the conditions of the new government is that there should be a fair return and benefit for British Columbians. We will do that. We need them to look at the full complexity of federal, provincial, local and other taxes that we pay to say, ‘Does this still make sense? Is this still competitive?'”

One of the biggest criticisms from the industry’s standpoint of the former Liberal government’s tax and royalty regime for LNG was a special LNG tax, which companies in regions like the U.S. and Australia do not pay.

Asked if that LNG tax was something LNG Canada needs addressed, Calitz indicated it was.

“That is a subject we are discussing with the government,” he said.

Calitz said LNG Canada will submit a “decision support package” to all four companies in the joint venture in support of a final investment decision sometime in 2018.