Take a quick trip around the world of LNG

A lot has been happening on the LNG front since Malcolm Baxter's last column...

There’s lots been happening on the LNG front since my last column so this time around we’ll quickly cover as much ground as we can.

Feds come through

It took forever, but the federal government finally came up with the “tax break” that proponents of BC LNG projects have been calling for.

As I explained in my November column, under the then existing rules LNG plants would be treated as a “distribution business” which means it would take around 25 years for the companies to recover their up-front costs. The potential LNG exporters wanted to be treated the same as manufacturers – what’s known as a class 43 designation – which would allow them to recover those costs in as little as eight years.

And they pretty much got what they wanted with the feds increasing the capital cost allowance from 8 per cent to 30 per cent on “equipment and structures” for natural gas liquefaction capital expenditures from February 19, the date of the announcement, to 2024.

While proponents made all the right noises in welcoming the announcement, none were suggesting that this would mean green lighting their projects the next day.

Not surprising given they have to figure out what the plunge in oil/LNG prices does to the economics of their proposed projects and if/how prices might bounce back in the long term.

And as Michael Cuthbert, president of Pacific Northwest LNG pointed out, the industry will still in the long term pay the same amount of taxes.

But every little helps in the near term.

Kitimat LNG

No final investment decision (FID) here for a couple of years yet for this Kitimat project.

Partners Chevron and Woodside of Australia have said they are focusing their capital expenditures this year and next on drilling in the Liard Basin in northeast B.C. to prove up the estimated natural gas reserves that will supply their proposed LNG plant.

There is also the not so tiny problem that the project still doesn’t have any customers.

If everything came together and it got the green light in 2017, the first LNG would not be shipped out until 2021.

Shell (LNG Canada)

Awarded the FEED contract (essentially a design and feasibility study) last fall for this Kitimat project.

Oliver Munar of WorleyParsons, one of the outfits involved in the FEED, said in an October 23 article in the Journal of Commerce that it would be “a couple of years” before Shell could make an FID.

Assuming a positive FID comes down next year, the first LNG will likely flow by 2021.

AltaGas (Douglas Channel consortium)

I am becoming increasingly convinced that this Kitimat project, in which the Haisla have a stake, will get the go-ahead this year, early 2016 at the latest.

The reasons for my rare ray of optimism are four-fold.

First, unlike the mega-projects, it does not have to build hundreds of kilometres of pipeline: AltaGas owns the existing Pacific Northern Gas line which needs only a relatively short extension to be able to feed the proposed LNG barge plant.

Second, one of the partners in the consortium is also a customer  – Idemitsu Kosan of Japan.

Third, it is a comparatively dirt cheap project with an estimated cost of $600 million instead of the multi-billions of dollars the majors are facing.

And finally, the elapsed time between the final investment decision and the first LNG exports is only three years as opposed to the likely five years for the majors.

As for the majors, there are a number of factors that will be taken into account before they make their FIDs – LNG supply and demand globally, the potential impact on that supply and demand of a restart of Japanese nuclear power plants, construction costs and more.

But that will have to wait for another time.

Retired Kitimat Northern Sentinel editor Malcolm Baxer now lives in Terrace. Reach him at msdbax@citywest.ca.

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