IEA casts doubt on B.C.'s LNG future in new report
Asian demand has dropped and so have LNG prices, reducing viability of LNG projects
British Columbia faces intense competition from the rest of the world in developing its liquefied natural gas industry in part because projects will not be viable at today's low gas prices, the International Energy Agency says.
"Prospects for [Canadian] LNG projects have deteriorated and no plant is expected to be operational over the time horizon of this report," the IEA said in a five-year outlook on the natural gas market released Thursday.
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The IEA points to the decline in Asian demand as consumers there found alternatives to pricey LNG,
"One of the key – and largely unexpected – developments of 2014 was weak Asian demand," IEA executive director Maria van der Hoeven said.
"Indeed, the belief that Asia will take whatever quantity of gas at whatever price is no longer a given. The experience of the past two years has opened the gas industry's eyes to a harsh reality: in a world of very cheap coal and falling costs for renewables, it was difficult for gas to compete."
A lot of competition
At the same time, there is a flood of new LNG supply coming on the market with global LNG export capacity to increase by more than 40 per cent by 2020.
Most of the new projects are coming coming from Australia and the United States and were begun when LNG prices were high and some have locked into deals to sell the gas at high prices.
However, today the price of LNG in Japan is $7.12 US per British thermal unit, about half the price it was a year ago and lower than the breakeven point for new LNG projects.
"New projects, however, will struggle to get off the ground at current prices," the IEA says in its report, pointing to the risks for the more than a dozen LNG projects proposed for B.C.
And while U.S. projects currently under construction have the prospect of using existing natural gas pipelines, B.C. still must invest in that kind of infrastructure.
The province aims to have three LNG plants in operation by 2020, but the IEA doesn't expect any to go online that soon.
Instead, it projects delays as investors wait for gas prices to recover and project leaders negotiate with B.C. First Nations.
Competitiveness concerns in long term
The IEA projects global demand for gas will rise about two per cent per year for the next five years, slower than the average of 2.3 per cent annually in the previous decade.
The competitiveness of natural gas remains uncertain in the longer term, it said, as there is a prospect of renewables becoming cheaper.
Canadian gas producers, already facing low prices and limitations getting their product to market, will be met with growing competition from U.S. shale gas in the American Midwest, the IEA said.
"For Canadian production, the main issue is how fast and how competitively U.S. Northeast gas can penetrate the Midwest market (which accounts for about a quarter of total U.S. gas consumption) and possibly Central and Eastern Canada," the IEA said. "Further displacement seems likely when judging from the pipeline of new projects."