Friday, June 5, 2015

International Energy Agency forecasts cloudy skies over BC's LNG ambitions

A new report from the Paris based International Energy Agency is making for a few waves in Canada's financial media this week.

As the just released Medium Term Gas Market report for 2015 offers up an industry outlook ahead which may provide for a rethink when it comes to timelines of development and the hoped for burst of LNG terminal development that the BC Liberal Government has been planning on for this region of the province.

The organization delivered its 142 page report as part of a multi media presentation on Thursday in Paris. And while the Canadian overview is only available through purchase of the report, the title of the chapter would tend to give us a bit of an indication that the impressions are not overly positive.

Page 115 features the Canadian overview, titled Canada: A darkened outlook

The National Post provided a thumbnail sketch of some of that gloom from the IEA

Canadian LNG prospects have 'darkened,' says International Energy Agency

In a passage made available from their Medium Term market Report for 2015, the IEA seems to be offering up observations that would be directed towards the timeline that the majority of the projects proposed for the North Coast have been working towards

Due to its capital-intensive nature, the liquefied natural gas (LNG) industry faces an uphill battle. Those projects currently under construction today are set to come on stream broadly as planned, as large upfront capital costs have already been incurred. Beyond that, however, new LNG plants will struggle to get off the ground. 

Today LNG prices simply do not cover the capital costs of new plants. Several projects have already been scrapped or postponed, and the number of casualties will rise if prices do not recover. Final investment decisions (FID) taken in the next 24 months will determine the amount of incremental LNG supplies available in the early part of the next decade. If current low prices persist, LNG markets could start to tighten up substantially by 2020.  -- From the Executive Summary from the IEA

The full overview from the Executive Summary can be reviewed here.

Other key points from the presentation in Paris by Maria van der Hoeven the IEA Executive Director can be reviewed from the transcript of her opening remarks.  In her review she made one observation that might send a bit of shudder through the board rooms and government offices in British Columbia.

Due to their capital-intensive nature and long lead times, LNG projects are soft targets for investment cuts and several of them are likely to be delayed or even cancelled. Reinforcing the impact of lower oil prices is marked expansion of new LNG supplies in the next three years.

Followed by a warning on the nature of the Asian market, where a good portion of any BC LNG shipments are destined to head for.

Ladies and gentlemen, markets are not always predictable, and times change. The essential disappearance of the Asian premium is evidence of this volatility. 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 may be difficult for gas to compete.

The full transcript can be examined here.

For British Columbia and Prince Rupert for that matter, the wrap up to Ms. van der Hoeven's speech delivers the major talking point for the future.

Markets are not always predictable and times change,  a business observation that may tell the tale of LNG development for the region, if the forecast as outlined holds true deferrals and pauses may give way to farewells and more items for the list of North Coast projects that could have been.

More media reviews of the IEA report can be found below:

CBC -- IEA casts doubt on BC's LNG future in new report
Business in Vancouver -- Demand for LNG revised downward amid plunging oil, coal prices: IEA report
Globe and Mail -- Canadian gas producers face dour prospects, IEA says
Globe and Mail -- B. C. LNG facilities may not be built until after 2020, report says
CTV News -- Canada's LNG export prospects have 'darkened': report

You can review the growing list of potential LNG proposals for the Northwest from our archive page

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