LNG coming to BC, big and fast. Are you ready?
Other LNG market newcomers are Indonesia, Mozambique and the US. Indonesia will be expanding exports, with low production costs but a limited supply. Canada is about five years ahead of the US and Mozambique in development activity, and the US may be slowed further by concerns about fracking and the desire to support its manufacturing sector. The US put the hot potato fracking issue on hold during the Presidential election season.
Canada’s advantages for global investors
Canada needs to attract international partners because, in the words of Rich Coleman, Minster of Energy, Mines and Natural Gas, “We’re a jurisdiction of 4 million people; We can’t do this alone.” Minister Coleman listed Canada’s advantages as: 1) the right resource – an abundant energy supply to meet a high demand; 2) the right people – a motivated and educated workforce; 3) the right location – 11 days to ports in Korea and Japan; and 4) “We don’t like to lose.”
In addition, the cool northern climate lowers the cost of cooling the natural gas into liquid form. Tankers don’t have the high cost of going through the Panama Canal. Canada is viewed as a politically stable, low risk country with both provincial and federal governments that support LNG export.
Canada’s disadvantages for global investors
B.C. is unproved as a reliable exporter of LNG, so investors are cautious about testing the waters. It’s natural gas fields lie behind the Rocky Mountains and pipelines through rugged terrain are both complicated, expensive, time consuming and controversial. “This is really a pipeline project,” said Betsy Spomer, the CEO of BG LNG Services. The need to construct new plants is seen as an added cost. The labour supply is unsure, given the small population of the north.
The uncertainty around aboriginal rights and title and the desire of some First Nations to keep their territories suitable for traditional uses is viewed as an uncertainty. So is B.C.’s proposed LNG tax, which won’t be settled for another year.
Securing the huge amount of power necessary to run the plants is also viewed as challenging. Using all natural gas would result in emissions high enough to bust B.C.’s legislated 2020 greenhouse gas targets. Using all hydro power would require transmission upgrades and the procurement of new sources. Charles Reid, CEO of BC Hydro, mentioned a “hybrid” option - providing 15% of the plant electricity with grid power and using natural gas for the energy-hungry compressors. This may be what Premier Clark meant when she talked about producing “the environmentally cleanest LNG anywhere on the globe” – although Reid mentioned that Norway has a liquification plant run entirely on electricity.
First Nations partners
The conference opened with a display of cooperation between First Nations and industry with the signing of the benefits agreement between fifteen First Nations, Chevron and Apache. Later in the morning, Ellis Ross of the Haisla First Nation said that he sees big advantages for companies that want to partner with First Nations because they are a work force that will remain in the area. But he warned against looking for one defined consultation process because every First Nation has different priorities between employment, benefits contracts and environmental concerns. He said industry can help First Nations on the road to independence and dignity where government programming has failed.
In an afternoon panel, participants talked about huge value creation from industry-First Nation projects and how good jobs would attract band members back to their territories from urban areas where they have gone to look for work, women in particular. David LaVille, manager of Haisla Business Operations, said the biggest value for his nation is economic independence and a cash flow stream for social programs that can bring training for jobs and contracts. Chief Raymond Morris of the Nee Tahi Buhn Indian Band from the Burns Lake area said that dollars attract people who sell risky lifestyles and its a challenge to protect families and young people and keep the culture alive. “Risk is all around,” he said. “We walk through it.”
Gearing up the work force