Today Pacific Northwest LNG announced what has been obvious for a considerable time. Unless the provincial government was prepared to guarantee profits and underwrite losses, the project was not proceeding. The following article is from 2014.
Some years ago, Premier Gordon Campbell announced the Gateway Program for improvement of roads and bridges throughout Greater Vancouver. It included a new Fraser River crossing and reconstruction of Highway 1 from Vancouver to Langley. Also in the plan was the South Fraser Perimeter Road for port, industrial and regional users along the south side of the Fraser River.
The budgeted cost for the Port Mann / Highway 1 Corridor was $1.5 billion and for the South Fraser Perimeter Road, $800 million. Actual costs were at least $3.32 billion and $1.24 billion respectively. Despite each of the projects opening a year late, with a combined cost overrun of 98%, BC Liberals announced the projects as on-time, on-budget.
Other major projects – notably BC Place, Northwest Transmission Line and Sea to Sky Highway – experienced similar budget blunders. Lately, the least competent managers in BC history have been aiming to make the province a major exporter of natural gas. This is a costly and risky proposition.
Actual and forecast cash and tax expenditures for natural gas currently amount to more than a billion dollars a year and the $8.8 billion Site C dam, not needed for domestic consumption, may be intended to provide power to LNG facilities. Beyond subsidized power, taxpayers are likely on the hook for material amounts for infrastructure to support gas transport and processing.
Liberals are betting with taxpayers money, the stakes are high and the bet is not safe. From Asian LNG prices seen falling by up to 30 pct in 2015, a recent report by Reuters:
Asian liquefied natural gas (LNG) prices are expected to fall by up to 30 percent in 2015, according to a survey of analysts and consultants, as the market enters a period of oversupply and the impact of lower oil prices kicks in.
The explosive growth in LNG consumption seen in recent years has stalled on cooling Asian economies and with a resumption of nuclear energy and a greater use of coal in some markets.
At the same time new LNG production has been coming on stream, meaning tight supply conditions that had been expected to last until the end of the decade are ending more quickly.
“Demand is a lot weaker than we anticipated just six months ago,” said Gavin Thompson, head of Asia-Pacific gas and power at consultancy Wood Mackenzie.
Asian spot LNG prices LNG-AS have more than halved since the start of the year to below $10 per million British thermal units (mmBtu).
Average import prices into Japan, the world’s top buyer, are forecast to fall to about $11 per mmBtu next year, down from an estimated $15.50 this year and $16.45 in 2013, if Brent crude averages around $75 a barrel, according to David Hewitt, co-head of global oil and gas equity research at Credit Suisse…
A December 30 report by The Telegraph newspaper stated that Brent crude plunged below $57 per barrel as traders bet that the global oversupply of oil will continue. According to the paper, oil traded in North America is poised to crash through the $50 per barrel level. Those levels indicate a greater decrease is likely for Asian LNG.
Lower prices would be an insurmountable barrier to development of a gas liquefaction industry in BC if the investment decisions were left to the private sector. However, the BC Liberal government has demonstrated willingness to take on massive debt and contractual commitments to further its primary agenda, which is political, not economic.
Oil price crash claims first U.S. LNG project casualty, Reuters, December 30, 2014:
Excelerate Energy’s Texan liquefied natural gas terminal plan has become the first victim of an oil price slump threatening the economics of U.S. LNG export projects.
A halving in the oil price since June has upended assumptions by developers that cheap U.S. LNG would muscle into high-value Asian energy markets, which relied on oil prices staying high to make the U.S. supply affordable.
…Excelerate’s move bodes ill for thirteen other U.S. LNG projects, which have also not signed up enough international buyers, to reach a final investment decision (FID).
…Stiff economic headwinds are making new developments tough going.
Prices that LNG projects can charge for long-term supply are falling from historic highs as new producers crowd the market, which is already oversupplied due to slowing demand and rising output that has seen spot Asian LNG prices halve this year…
Even existing production of BC natural gas has ceased to bring in natural resources revenues because, in the last few years, subsidies taken or accrued by producers are greater than government revenues from royalties and rights sales.