Can the Yanks outdo our LNG aspirations?

In the hyped up world of LNG there is no shortage of proponents seeking the supposed pot of gold at the end of that particular rainbow

In the hyped up world of LNG there is no shortage of proponents seeking the supposed pot of gold at the end of that particular rainbow.

On our coast the list of those planning – or at least considering – building an LNG plant is long.

Nearly all of the proponents are major companies – Chevron, Apache, Petronas of Malaysia, Brit outfit BG and Shell for example. And all of them have an ownership stake in the gas fields that will feed their plants.

An exception in our backyard is the BC LNG Co-op proposal to moor a floating LNG plant in the Douglas Channel just south of Kitimat. The partners in this venture, which include the Haisla First Nation, do not own any gas fields and made it clear from the start their idea was to provide an outlet for small to medium sized natural gas producers.

Now there is an echo of that concept south of the border, namely the Oregon LNG project.

Talking about that proposal in late September, company CEO Peter Hansen said, “(Oregon LNG) does creates a reasonable outlet for small and medium sized gas producers.” (Calgary Herald)

His point was the same as the Co-op’s: global whales like Chevron, Petronas, Shell, etc. will build plants to suit their needs and aren’t much interested in providing an outlet for the minnows.

But what was most interesting was Hansen saying he saw Canada as the main source of natural gas for the Oregon plant, going so far as to describe it as “just another British Columbia coast project.”

So why the emphasis on Canadian natural gas since I am sure there are small to medium producers in the USA?

We’d probably have to go back to 1973 and the OPEC (Organization of the Petroleum Exporting Countries) crisis. That was when the Middle Eastern oil producers decided to punish those countries, including the United States, that supported Israel in the Yom Kippur war through an oil embargo, a move that sent gasoline prices skyrocketing. Having learned what power they held, the OPEC countries have ever since been pretty smart about adjusting their supply to ensure the best possible return on their oil.

This made energy self-sufficiency the US Holy Grail, although frankly it was then more political rhetoric than anything meaningful. But today it is estimated that the US could actually achieve that goal by 2030 as a result of the boom in both unconventional oil and natural gas.

Seeing the prize within its grasp, the US is being cautious about the amount of natural gas it will allow to be exported.

So Oregon LNG appears to have come up with a cute way of avoiding that problem. As in, “Hey, we’re not going to export our gas, we’re going to ship out Canadian stuff so there is no threat here to self-sufficiency!”

(That said, I have my doubts that ploy will work since I suspect the Americans regard our gas as theirs.)

It also occurs to me that natural gas producers in B.C. may find it attractive to ship their product to a US LNG plant rather than one on our coast.

The reason for that is there is not, to my knowledge, any export tax on natural gas exports whereas the B.C. government is planning to slap one on LNG exports.

So routing through a US LNG plant will reduce the price of that LNG by the amount of the taxes B.C. levies.

And in an increasingly competitive market, every little helps.

A final note on LNG in B.C. – and one that will likely cool the ardour of those touting LNG.

Talking to reporters at the 2013 Calgary Energy Roundtable conference three weeks ago, Chevron Canada president Jeff Lehrmann had this to say on the Kitimat LNG project in which the company owns a 50 per cent stake.

First, Chevron’s US mothership has dozens of projects around the world it could invest in but it will only do so in the best ones.

Second, he pointed out the Gorgon gas field in Australia was discovered back in 1986, but the project only went ahead a few years ago. In other words, Chevron, unlike governments, takes a very long-term view.

Then the Big Chill: “(Kitimat LNG) may not be today, but it might be for the future. Something for my kids or their kids.” (Calgary Herald)

Before people assume the sky is falling, I offer a couple of thoughts.

First, Rio Tinto consistently made the point that the Kitimat Modernisation Project had to compete with others world-wide and in the end the project successfully did.

Second, I suspect Chevron was putting pressure on the B.C. government not to get too greedy on taxation by warning they had a lot of other fiscally friendlier places they could be spending their money.

In the meantime we wait for the provincial government to unveil its LNG tax plan – and the reaction.

Retired Kitimat Northern Sentinel editor Malcolm Baxter now lives in Terrace, B.C.

 

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