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Energy Watch: First British Columbia LNG plant approved

Extended Coverage

ANALYSIS: British Columbia will soon get its first liquefied natural gas plant, but it will not be for B.C.’s much ballyhooed LNG export boom.

Dawson Creek, a town of about 11,000 in northeast B.C., approved a $250-million plan late Monday that will see AltaGas build a facility that will be part of a regional network capable of producing up to 500,000 gallons of LNG per day. Once the facility begins cooling natural gas to temperatures below -160C (nearly as cold as outer space), the town’s chief administrator believes the province’s grandiose LNG export plans will likely remain frozen.

“The provincial government isn’t having any luck getting LNG plants built on the west coast, but we’ll have one in Dawson,” Jim Chute told the Alaska Highway News.

It may be a bit too soon yet to say B.C’s dreams of becoming a global force in the LNG export trade have been dashed, but they certainly have been downsized. More than 15 different proposals have been created and more than half of those have received export permits from the National Energy Board.

B.C. is hoping for two or three to be up and running roughly a decade from now. Yet none of them – not even Petronas with its $5-billion newly acquired Canadian subsidiary [Progress] and a $36-billion long-term strategy – have made a final decision to commit. Some, such as Kitimat LNG partner Apache Corp., have already bowed to pressure from shareholders to drop out of the high-cost and high-risk race to feed energy-hungry Asian markets.

Many are waiting for the provincial government to settle the details of its LNG export tax regime. The province unveiled a two-tiered plan in February that it claimed was designed to be competitive with other jurisdictions and would generate up to $100-billion over 30 years to wipe out the provincial debt. Industry balked at the plan as being unrealistic and uncompetitive, with Petronas CEO Shamsul Abbas going as far as warning B.C. not to “slaughter the goose before it even has a chance to hatch the golden egg.”

The province is expected to clarify the details during the fall sitting of the legislature in Victoria and that will likely help many of Canada’s potential LNG players make decisions about whether or not to go forward. However, with many other countries such as the United States, Australia and Malaysia having advantages of time, resources and geography, most experts do not expect more than one LNG plant to be operating on the west coast in the next ten years.

In the meantime, news of B.C. building its first LNG plant for domestic use – the supercool gas processed in Dawson will be trucked up to Canada’s northern territories to replace most costly diesel – actually bodes rather well for Canada’s natural gas producers more broadly.

Because Canadian natural gas production is on track to increase dramatically in the coming years – largely to feed all those massive LNG export plants – numerous experts have expressed concern over the potential for gas prices to collapse if those export plants never get built. The idea is so-called “trapped gas” in Canada would vastly outstrip domestic demand, leading to a major falloff in prices.

Raymond James, however, has recently become more optimistic about the prospects for Canadian natural gas prices to remain strong even in the face of an LNG export bust. Increasing demand from the power sector combined with low storage levels should maintain higher prices, according to a 25-page report published August 20th.

“The AECO [Canadian] gas price can have the potential to outperform relative to other North American hubs for some time frame just beyond the coming winter,” the report said. “We frankly see the risk of trapped gas in Canada as becoming more remote rather than likely.”

If Canada manages to eventually get an LNG plant or two operating on the west coast, then so much the better, especially as far as B.C.’s provincial coffers are concerned. But if not, then it would appear Canada’s natural gas producers will still enjoy plenty of demand here at home.

Jameson Berkow is BNN's western bureau chief based out of Calgary. Every weekday morning he researches the top stories affecting commodities and the oil patch, and sends his analysis to the BNN newsroom in Toronto. You can follow him on twitter @crudereporter

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