B.C. LNG hopes come down to hard numbers

Key to development depends on very long term outlook

Last time I closed with the question, what is the outlook for LNG in these turbulent times, particularly when it comes to the proposed projects in our backyard?

Depending on what forecasts you believe, the answer is either – like Monty Pyton’s parrot – “it’s dead” or “only sleeping”.

Part of the answer lies in the basic demand-supply ratio.

The demand side does not paint a pretty picture right now.

For example, Korea Gas (Kogas) has seen its sales of natural gas fall nearly 23 per cent from December 2014 to December last year – and it has a monopoly of supply in its domestic market.

Japan’s demand for LNG fell four percent last year and China’s, after years of double digit increases, went down by two percent. Those figures are not terrifying if the supply of LNG were to hold at the level it now is.

But if you look at the 118.9 million tonnes per annum (mtpa) of new production that is forecast to come on the market over just the next two years, you could be forgiven for concluding the parrot is as dead as a doornail.

However, I question those forecasts.

The list of projects includes 62.5 mtpa from US plants. While the 18 mtpa Sabine Pass (Louisiana) project is very close to shipping product, I have my doubts that Freeport (Texas, 13.9 mtpa), Cameron (Louisiana, 12mtpa), Cove Point (Maryland, 5.2 mtpa) and Corpus Christi (Texas, 13.3 mtpa) are going to be up and running in that time frame.

(I should add that Sabine will not be shipping out the full 18 mtpa immediately but rather incrementally and even that depends on market conditions.)

You can dismiss Yamal (Russia, 16.5 mtpa) since their projected startup date is listed as 2018-2021, a clear indication they haven’t the vaguest idea when, or even if, it will proceed.

Petronas of Malaysia has a couple of floating LNG plants in the works but at a total output of 2.7 mtpa they are not market breakers.

Which leaves the total of 37 mtpa from Australia’s Gorgon (15.6 mtpa), Wheatstone (8.9 mtpa), Prelude (3.6 mtpa) and Ichthys (8.9 mtpa) proposals.

(Of interest is that Gorgon’s partners include Chevron (Kitimat LNG) and Shell (LNG Canada), Wheatstone has Chevron and Woodside (Kitimat LNG), and Shell is the big player in Prelude. Ichthys is primarily a Japanese consortium.)

Given Ichthys is in difficulties – it originally targeted late this year for first shipments but has now pushed that back to the fall of next year – let’s take them out of the equation.

That leaves 28 mtpa of Aussie production that can reasonably be expected to come to market by the end of 2018. Again, not a terrifying number since it would require only a relatively modest increase in demand over the next 36 months to maintain market balance.

All that said, what happens between now and the end of 2018 in terms of demand/supply/price is not relevant to financial investment decisions for LNG Canada or Kitimat LNG since, even if the green light for either came tomorrow morning, the absolute earliest they could be shipping LNG is 2020-2021.

So any final decision will be based on their best forecast on the cost of building their projects, demand from 2020 to 2060 – assuming a 40-year life span for the plants – and, as an extension of demand, what the average price will be over four decades.

Projected price is the big one since you have to be confident that revenues will pay all the bills and leave you with a profit.

We’ll get into the murky world of price next time.

AN ASIDE: While I applaud the recent editorial in this newspaper on council’s unequal treatment of its citizens in regards to subsidizing the cost of clearing city-created snow windrows across driveways, may I suggest there is a more basic issue.

And that is the creation of the windrows themselves.

Some 20-plus years ago when I was the Standard’s reporter covering council, this issue came up. At that time then assistant engineer John Colongard suggested a solution: attach a hydraulic “wing” extension to the graders’ blades.

The idea was that as the grader approached a driveway the wing would be pulled in so it was at 90 degrees to the blade, thus preventing the snow from being dumped into the driveway. The wing would be returned to its original position after the driveway was passed. While the system was being used successfully elsewhere, if memory serves, Colongard’s idea was torpedoed on the grounds of cost.

I suggest a re-examination of that solution, or any other that has emerged in the last two decades, would not be out of place.