CPABC Industry Update Summer 2014 - Page 6

The LNG Opportunity in BC: Separating Rhetoric from Reality - Part I By Tom Syer and Jock Finlayson Editor’s note: In a two-part feature published in the Business Council of British Columbia’s Environment and Energy Bulletin, the validity of the arguments suggesting that BC should put the brakes on LNG development are assessed. Part I (Volume 6, Issue 3, June 2014) focuses on the economic concerns related to LNG development in BC; chief among these concerns: the highly competitive Asian market, and the possibility that the price spread supporting the LNG opportunity in BC could easily disappear. Part II (Volume 6, Issue 4, July 2014) focuses on concerns about climate change and other environmental impacts linked to LNG. Here’s an abridged version of Part I, published with the authors’ permission. LNG Economics I n the BC context, the scale of market activity in the LNG sector is remarkable. It is clear that the potential for private sector LNG capital deployment is unprecedented in BC’s history. To summarize the activity briefly, BC (and Alberta) have world-class upstream natural gas resources – estimated page 6 | I N D U S T R Y U P D AT E in excess of 500 trillion cubic metres of reserves – making Canada the fifth largest gas producer in the world. To date, these natural gas resources have been well developed by a cluster of companies that are global leaders in shale gas development. Combined with BC’s institutional/regulatory stability, close proximity to Asia, and the existence of a significant price differential between Asian and North American natural gas markets, BC’s resource abundance has prompted as many as 13 proposed LNG projects – over half of which are led by major global energy companies on both the supply and demand sides. These proposed projects each represent capital deployments valued between $1-2 billion for the smaller projects and up to $20+ billion for the larger LNG facilities. When incremental midstream and upstream activity is added in, the total private sector capital deployment for a large LNG project will exceed $36+ billion.1 Private Sector Investment Activity Actual expenditures – dollars spent by proponents on regulatory work, front-end engineering and design, labour and supply chain activity, and partnership development – are already in evidence. We estimate that the cluster of LNG