Trent Ernst, Editor
LNG Canada, a joint-venture company led by Shell, has been granted a 40-year export licence by the National Energy Board (NEB) as prices for Liquefied Natural Gas (LNG) plummet globally.
The NEB permit allows LNG Canada to export up to 1,494-billion cubic metres of liquefied natural gas from a proposed terminal near Kitimat.
The 40 year licence replaces a 25-year licence the company was granted in 2013.
The new licence must still be approved by the prime minister and his cabinet.
The announcement follows an announcement by the BC Oil and Gas Commission approving an LNG Facility Permit, one of the key permits for construction and operation of the proposed project.
LNG Canada is the first LNG project in British Columbia to get this permit, which focuses specifies the requirements on the project must comply with when designing, constructing and operating the proposed LNG export facility in Kitimat, especially in regards to environmental and safety concerns.
Several conditions were identified by the OGC, but LNG Canada is confident they can meet those conditions. “We have reviewed these conditions and are confident that we will meet these conditions as they are aligned with LNG Canada’s core safety values and commitment to protect the environment, the community and our workers,” said Andy Cailitz, CEO of LNG Canada.
In addition to Shell Canada Energy, LNG Canada is made up of PetroChina, Korea Gas Corp. and Mitsubishi Corp. The group has not yet made a final investment decision on the project.
That decision could be affected by the current LNG market, which is currently oversupplied. And, with a smaller market than oil, the price is far more sensitive to supply glut.
The pattern for LNG is similar to what happened to metallurgical coal earlier in the decade. When Australia’s met coal mines were flooded, the price of coal went up, reaching a high of over $300/tonne. Dozens of new met coal projects were started, but then Australia’s mines came back on-stream and prices have dropped to less than $90/tonne, putting many mines out of business.
For LNG, the floods came when Japan’s Fukushima nuclear reactor suffered a critical meltdown in 2011. Demand for alternative energy sources in Asia skyrocketed, and worldwide, facilities were constructed to take advantage of this demand. The import price for LNG rose to US$18.11 per Million BTU in 2012, and remained fairly consistent until early last year, when prices were still US$15.22.
Many of those projects, including projects in Australia, came onstream in 2015, and more are expected to be completed in the next couple years, bringing an extra 15 million tones of capacity over the next year.
With so much supply hitting the market at the same time, prices for LNG are dropping. By May, the price had hit US$8.72, a drop of nearly 50 percent in less than six months. Spot prices in December was US$7.28.
And demand is decreasing. In Japan, LNG imports have dropped 12.8 percent year over year, while in South Korea, import levels are at their lowest in six years.
Some experts predict prices could drop as low as US$4 before the year is out.
The LNG Canada project is just one of 20 LNG proposals in BC. Four have received environmental approval from the province, while two have been granted permission to proceed by the Canadian Environmental Assessment Agency.
LNG Canada has some time yet to make its decision. The NEB licence gives them until December 31, 2022 to start exports.
While LNG Canada has not published any firm dates, the decision to move ahead could be made sometime later this year, with exports to begin near the end of the decade.
In a letter published by the NEB, they said the natural gas being proposed for export was surplus to Canadian needs. “The NEB is satisfied that Canada’s gas resource base, and the overall gas resource base in North America, is large and can accommodate reasonably foreseeable Canadian demand,” they wrote in a letter announcing the approval. “This demand would include the LNG exports proposed by LNG Canada as well as a plausible potential increase in Canadian demand.”