LNG Canada project would boost business in B.C.: economists

Former Statistics Canada economist estimates pipeline alone could add $5.8 billion in value for producers

Former Scotiabank economist Patricia Mohr speaks at a November 14 forum on the potential economic impact of B.C.’s LNG industry, with Bryan Yu, deputy chief economist with Central 1 Credit Union; renewable energy consultant Matthew Klippenstein; and Philip Cross, senior fellow at the Macdonald-Laurier Institute | Chung Chow

British Columbia’s economic growth, which has begun to slow, can expect a significant boost starting around 2019 and 2020 from the $40 billion LNG Canada project, through increased employment and non-residential construction.

And Canadian natural gas producers can expect to make roughly $5.8 billion more than they do now from selling pipeline gas domestically and to U.S. buyers.

Those were some of the highlights of an economic analysis presented by economists at a forum November 14 hosted by Resource Works.

Bryan Yu, deputy chief economist for Central 1 Credit Union, said B.C.’s economic growth has recently begun to slow, due in part to a cooling housing market.

He said the LNG Canada project would give the B.C. economy a lift by adding about 0.3% to 0.5% to B.C.’s GDP growth. He forecasts incremental spending of $12 billion and a boost in non-residential construction and employment.

“These are some positive signals for the B.C. economy as a result of the LNG project,” Yu said.

A lot of that growth will be regional, with the North Coast experiencing “a substantial boost in their economies.”

He said the North Coast-Nechako region can expect a 3.5% to 4% increase in employment over a three-year period.

The LNG Canada and Woodfibre LNG projects will add significant value to the natural gas that B.C. produces, said former Statistics Canada economist Philip Cross.

Cross, now a senior fellow at the Macdonald-Laurier Institute, used Statistics Canada modelling on the Coastal GasLink pipeline to give the forum a snapshot of the increased value that a liquefied natural gas (LNG) industry is expected to bring to natural gas producers in B.C.

Cross calculates that the natural gas pipeline to be built for the $40 billion LNG Canada project would increase natural gas production in B.C. by 10%, and raise the value of the gas produced by at least $519 million annually.

That arguably conservative number is based on North American natural gas prices in 2014. Cross used 2014 prices because the most recent available data from Statistics Canada, which he used in his modelling, was from that year. Based on current Asian prices, however, the value would likely be closer to $5.8 billion.

That $5.8 billion is the added value of LNG exports over what Canadian producers get now from selling pipeline gas domestically and to the U.S.

Even that number, based on a price of $10 per million British thermal units (mmBTU), is likely an underestimate, because Asian prices for LNG are already higher than that.

“This is a pretty conservative increase,” Cross said. “The potential is there for much larger increases.”

The differential between natural gas prices in North America and Asia underscores the benefits of exporting natural gas in liquefied form.

North American gas prices have spiked in recent weeks to US$4.80 per mmBTU, but for most of this year they were close to US$3 mmBTU.

Former Scotiabank (TSX:BNS) economist Patricia Mohr, one of four panellists at least week’s forum, said the landed price for LNG in Japan in October was US$11.30 per mmBTU, and spot prices were US$10.60 per mmBTU.

“That’s what makes this project potentially extremely valuable,” Cross said.

Mohr said the long-term contract prices for LNG in Asia will likely be between US$10 to US$11 per mmBTU over the next couple of years. She added that nuclear power plants coming back online in Japan will have a temporary effect on spot prices.

“But medium term, I think LNG is going to be a growth market,” Mohr said.

She said the demand for LNG in Asia is expected to expand 11% to 12% annually.

At $10 per mmBTU, the added value of LNG exports resulting from the new pipeline for LNG Canada and a 10% increase in production is around $5.8 billion, Cross said.

As for the smaller Woodfibre LNG project in Squamish, Cross estimated the increase in value at $500 million annually.

For every $500 million in increased value, about $98 million would flow to B.C. businesses, mostly in the service industries, Cross said.

Cross’ modelling focused only on the Coastal GasLink pipeline and the resulting increased gas production. It did not include potential economic benefits from the $18 billion LNG plant that will be built in Kitimat.

Cross said the Coastal GasLink pipeline would stimulate the B.C. economy in three main ways.

First, there is the $6.2 billion that will be spent building the pipeline. That alone is expected to generate 2,000 to 2,500 construction jobs, with peak construction happening in 2020 and 2021.

Second, Cross estimated that the pipeline will increase natural gas production in B.C. by 10%. Finally, producers can expect higher prices, since prices for LNG in Asia are much higher than prices for pipeline gas in North America.

Mohr said some LNG is expected to displace coal power in Asia, especially in China, South Korea and India.

But Wenran Jiang, president of the Canada-China Energy and Environment Forum, told last week’s forum that he had just returned from Beijing, where Chinese officials made it clear that a significant phase-out of coal is not something that’s going to happen any time soon.

He said Canadian Environment Minister Catherine McKenna recently urged China to sign on to the Powering Past Coal Alliance – an effort to get countries to phase out coal power.

“China refused,” Jiang said. “They brought up two points. No. 1, they cannot get rid of coal. Internally they want to do as much as possible, but coal is still much cheaper.”