First Nations LNG Alliance Newsletter 03

This week’s highlights:

  • Article: Why LNG Prices Matter
  • Opinion: LNG in B.C. – A certain future
  • Headlines: Recent News

To understand why none of the LNG projects in northwestern BC have reached a final investment decision, we must look at the sagging prices of LNG world-wide. At present, most exported LNG is sold via long-term contracts to countries who are net importers such as Japan, China, India and South Korea.

Importance of Profitability 
LNG facilities are designed to last decades, and the up-front capital costs to build the facilities are enormous, running into the billions of dollars. As a result, it is extremely important for LNG companies to ensure their profitability before they make a final investment decision. This means buyers and contractors need to be lined up in advance, to ensure that gas being produced in the future will still be purchased for a price that turns a profit. Pricing of LNG is extremely complex, but there are a number of factors influencing its price, including oil prices and LNG supply.

Oil Prices
Historically, LNG prices were directly correlated to the price of oil, with the price of LNG rising or falling as oil prices rose or fell. This is still a factor now, with low oil prices currently lowering the price of LNG.

LNG Supply
Worldwide supply of LNG was lower a few years ago than it is now, so countries were were more willing to lock into long term LNG purchase contracts at higher prices to ensure their supply of the product at that time. However, as more countries have ramped up their LNG production, worldwide supply has increased, pushing the global price of LNG down and turning the tide for the industry. LNG exporting countries are now competing against each other for LNG purchase contracts with importing countries, and the importing countries are well positioned to negotiate the best deal they can get on prices before locking into a contract.

Many B.C. communities near proposed LNG projects are eagerly awaiting Final Investment Decisions on the projects near them, as these projects would create jobs for them and positively impact their economies. However, given current low LNG prices, it is difficult to predict with any certainty whether these large projects will move forward in the near future. Some LNG analysts are predicting that the next window for long-term LNG contracts will not arrive for several more years, with Business in Vancouver predicting LNG Canada’s FID in 2018 or 2019. It is worth noting that several of the larger projects being proposed in B.C. (LNG Canada, and Pacific Northwest LNG) include investments from countries who are net importers of LNG. So, we can hope that the LNG needs from these countries leads to Final Investment Decisions down the road.


Opinion: LNG in B.C. – A certain future

By: FNLNGA CEO Karen Ogen-Toews, and BCLNGA CEO David Keane

The question for the liquefied natural gas (LNG) industry in B.C. isn’t if, but when.

The industry is moving forward, even as global energy prices remain low. LNG companies are investing tens of millions of dollars each year into their projects and have already spent billions of dollars in B.C. because they see the long-term potential for LNG.

As countries look for cleaner, affordable sources of energy that help meet their climate goals, the International Energy Agency predicts demand for natural gas will soar 50 per cent by 2040. B.C. is well-positioned to help meet that demand and benefit from it with responsibly produced natural gas.

To date, more than 2,000 people have been employed directly and indirectly by the eight leading LNG projects in B.C. province-wide, with employees working on site preparation in northwest B.C., the Tilbury LNG expansion in Delta, and in project offices in cities and towns around the province, including Vancouver. The emerging B.C. LNG industry is training apprentices, contracting businesses and supporting families right now.

According to the Conference Board of Canada, if an LNG industry comprised of one small and two larger LNG facilities is built in B.C., it will grow Canada’s economy by $7.4 billion a year for the next 30 years. These three projects would also raise national employment by 65,000 jobs a year on average and provide $6 billion to the federal government and nearly $3 billion of new revenue to B.C.’s government and the rest of Canada annually. An additional $3 billion could fund: 60 new elementary schools ($1.5 billion), 1,400 teachers ($100 million), 20 MRI machines ($100 million), 900 family physicians ($200 million), 6,500 hip replacements ($100 million) and a new Pattullo Bridge ($1 billion).
The report also concludes the additional employment created by the industry would result in an increase in household disposable income in B.C. by an average of $860 per person.


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