In the LNG business, China holds all the cards

Life was already complicated enough when it came to B.C.’s LNG aspirations, but the Russians and Chinese have just cranked it up

Oh those Russians.

Life was already complicated enough when it came to B.C.’s LNG aspirations, but the Russians and Chinese have just cranked it up several notches.

I refer to the late May deal signed between the two that will see a pipeline built that will ultimately carry 3.7 billion cubic feet of gas a day from Russia’s East Siberian gas fields to customers in China.

Now there were a couple of  things to like about the deal if you were a proponent of a B.C. LNG plant.

First, it is for 30 years and that is just the sort of long-term contract that project proponents here – especially Kitimat LNG – have insisted they need.

Second, the price is linked to that of oil, another must-have for those same proponents.

The bad news is the price.

Back in the days of heady optimism that sparked the LNG “gold rush” and saw the provincial Liberals hitch their election campaign wagon to that rising star, Japan was paying between $15 and $18 per million British Thermal Unit (mbtu) while Canadian benchmark prices were as low as $3.

Even with the cost of extracting the gas, paying the toll to get the gas delivered by a pipeline company and building the liquefaction plant, an LNG export project was clearly a licence to print money.

So what will China be paying the Russians? Consensus says about $10 per mbtu.

Five weeks later, it was announced that Indonesia had renewed an admittedly small contract with one of the Chinese provinces. Again it was long-term – 20 years – and again it was oil-linked. The price was $10.30/mbtu.

So if that is as much as the Chinese are willing to pay, what does that mean for B.C. projects?

In a column last July, I noted that Cheniere, the outfit going full steam ahead with an export plant in Louisiana, estimated that with US natural gas prices of $4 it could deliver LNG to Asia at around $10.50/mbtu.

And that Janine McArdle, senior vice-president of gas monetization for Apache – don’t you just love those grand titles – had already made it clear that, at that sort of price, Kitimat LNG was a non-starter.

But is that all the Chinese are prepared to pay?

Probably not since they are smart enough not to put all their eggs in one basket and so will want to line up a number of sources, including Canada.

But they will use the Russian contract as a very big stick to persuade any potential new suppliers that they have to significantly moderate their price aspirations if they want to sell LNG to them.

There are other price pressure points as well.

There is the possibility of a second Russia-China pipeline to follow the one just agreed to.

Turkmenistan, which already supplies half the current Chinese natural gas needs, is planning to double its output by 2020.

And Chinese domestic production is expected to rise 50 per cent by 2017.

Now, if you add up all those non-Canadian supply sources, the total is still short of the forecast increase in Chinese demand.

But those forecasts are based in large part on the avowed goal of China to phase out its coal fired power plants and replace them with natural gas plants.

And government policy in China, untroubled by the need to ensure re-election, can change on a dime. In other words, it doesn’t need to hit that goal by any specific date.

So whereas the Russians, given the consequences of their Crimean adventure, needed that deal with China, China doesn’t necessarily need us.

Sure, they will buy our LNG, but only if the price is right. But what they likely consider the right price is almost certainly not enough to persuade B.C. proponents to spend billions of dollars on their projects.

While I would love to be proved wrong, frankly I cannot see the green light being given to any B.C. LNG project this year. And I have my doubts about even next year.

I’ll give the final word to Jeff Lehrmann, Chevron Canada president as quoted in my November 2013 column.

“(Kitimat LNG) may not be for today, but it may be for the future. Something for my kids or their kids,” he said.

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

 

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Northern Health saw 14 cases in one day earlier this week, the highest in one day since the beginning of the pandemic. (Image courtesy CDC)
Northern Health sees highest number of new COVID-19 cases in one day

Oct. 27 saw the highest number of new cases in the Health Authority since the start of the pandemic

Members of the Sipekne’katik First Nation load lobster traps on the wharf in Saulnierville, N.S., after launching its own self-regulated fishery on Thursday, Sept. 17, 2020. When Jaime Battiste was in his early 20s, cable news channels were full of images of Mi’kmaq fishermen in New Brunswick battling federal fisheries officers over seized lobster traps. (THE CANADIAN PRESS/Andrew Vaughan)
Nisga’a Lisims Government calls on Prime Minister to act in N.S. fisheries dispute

NLG President: “We are shocked by what’s happening in Nova Scotia”

A nurse prepares a flu shot. The public vaccine for the 2020-2021 flu season is now in pharmacies in Terrace. (AP Photo/David Goldman, File)
Private flu vaccines scarce at Terrace pharmacies

Public flu vaccines still available for those with greatest need

“We have to make a call out to address this now so our people don’t have to feel fearful,” said Tribal Chief Mina Holmes. (Carrier Sekani Tribal Council Facebook photo)
Carrier Sekani Tribal Council seeks Indigenous-led task force in northern B.C. hospitals

Request made in an open letter to federal minister Carolyn Bennett

A woman wears a face mask and plastic gloves while browsing books as a sticker on the floor indicates a one-way direction of travel between shelves of books at the Vancouver Public Library’s central branch, after it and four other branches reopened with limited services, in Vancouver, on Tuesday, July 14, 2020. (THE CANADIAN PRESS/Darryl Dyck)
B.C. reports 234 new COVID cases, 1 death of senior who had attended small birthday party

Roughly 5,700 people are isolating due to being exposed to a confirmed case

Burnaby RCMP responded to a dine-and-dash suspect who fell through a ceiling in March 2020. (RCMP handout)
VIDEO: Suspected dine-and-dasher falls through ceiling of Burnaby restaurant

A woman believed to be dashing on her restaurant bill fell through the kitchen ceiling

A can of Canada Dry Ginger Ale is shown in Toronto on Thursday Oct. 29, 2020. The maker of Canada Dry Ginger Ale has agreed to pay over $200,000 to settle a class-action lawsuit launched by a B.C. man who alleged he was misled by marketing suggesting the soda had medicinal benefits. THE CANADIAN PRESS/Joseph O’Connal
B.C. man’s lawsuit over marketing of Canada Dry ginger ale settled for $200K

Soda’s maker, Canada Dry Mott’s Inc., denied the allegations and any liability

Vancouver Island-based Wilson’s Transportation has expanded to fill some of the routes left unserviced by Greyhound as of Nov. 1, 2018. (Black Press files)
B.C. bus companies say they need help to survive COVID-19

Like airlines, motor coaches have lost most of their revenue

Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

A deer was spotted in October 2020 in Prince Rupert, B.C., with a bright pink yoga ball stuck in its antlers. (Kayla Vickers/Chronicles Of Hammy The Deer Official Page)
Hammy 2.0? Prince Rupert deer spotted with bright pink yoga ball stuck in antlers

The BC Conservation Officer Service is aware of the deer roaming around the city

RCMP. (Phil McLachlan - Black Press Media)
Kelowna Mountie hit with 2nd lawsuit in 2 months for alleged assault

Const. Julius Prommer is accused of breaking a woman’s knee during while responding to a noise complaint

Hirdeypal Batth, 24, has been charged with sexual assault and forcible confinement in relation to an incident in August 2020. (VPD handout)
Man, 24, charged with sex assault after allegedly posing as Uber driver in Vancouver

Investigators believe there could be more victims outside of the Vancouver area

B.C. Premier John Horgan and Washington Gov. Jay Inslee arrive for annual Cascadia conference in Vancouver, Oct. 10, 2018. They have agreed to coordinate the permanent switch to daylight saving time. (B.C. government)
B.C. still awaiting U.S. approval to eliminate daylight saving time

Clocks going back one hour Nov. 1 in Washington too

Most Read