LNG in a Shifting Global Context

March 13, 2013
Tom Syer

As British Columbians begin to get familiar with the possibility of having a new LNG industry driving our natural gas sector, we would be wise to have a clear understanding of just how tough the competition is within this rapidly developing global sector.

To start, there is no question global demand for LNG is expected to surge in the coming years. The International Energy Agency (IEA) estimates that global demand for natural gas will climb by 50% by 2035 - an astounding increase in energy demand by any measure.

Currently, the LNG portion of this demand is being met by an array of sources, including Algeria, Australia, Brunei, Indonesia, Malaysia, Nigeria, Norway, Peru, Qatar, Russia, Trinidad and Tobago and Yemen, to name some of the players. The chart below from the World LNG Factbook 2012 edition graphically depicts world export capacity now and into the near future.

As the chart shows, Canada is currently a potentially small player in the global LNG marketplace. Just to put the relative ‘tentativeness’ of our prospects in perspective, much of BC’s potential capacity isn’t even included in the speculative category of new capacity as defined by the authors of the LNG Factbook (as of April 2012).

The import side of the equation is also important for building an understanding of LNG. The chart below, again from the 2012 World LNG Factbook, shows the concentration of LNG import capacity in several markets: Japan, the United States, several western European countries, and a range of Asian countries.

The wildcard in the global marketplace is clearly the United States, which has an emerging significant surplus of natural gas and the potential to further convert existing import facilities to enable LNG exports. While this shift is far from certain, it is important to gauge the competition as we enter into an LNG marketplace that has many moving parts. As we undertake this shift, we would be wise to carefully study the following chart recently produced by NERA economic consulting for the US Department of Energy, which looked globally at the cost of supply for various LNG suppliers going forward:

As the above chart clearly shows, Canada (BC) would currently be at or near the top on the cost of supply estimates, based on the assumptions made by NERA.

Rather than view this cost challenge as a case for reconsidering LNG exports, the point here is to ensure that policy makers see LNG through a realistic lens. There will undoubtedly be significant benefits to LNG development if we get it right in British Columbia. However, stiff global competition means we must focus on our competitive framework for enabling the sector and ensuring we don’t begin by counting too many chickens before they come home to roost…

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