Friday, February 28, 2014

An attempted projection of LNG jobs through to 2024

I have been trying to quantify what is likely to happen with LNG in BC, here is my attempt on the jobs side.

I believe only 2 major projects are probable in the next ten years, Pacific Northwest LNG, majority owned by the Malaysian government through Petronas, and LNG Canada, a partnership of Shell, Mitsubishi, KOGAS and Petro China    Between them and their related pipelines we should see a peak direct construction employment of 13,500 and ongoing direct LNG plant jobs of 550 - that number comes from the companies themselves.  With indirect employment the construction phase should peak at 38,800.  For total direct and indirect ongoing employment there too many unknowns to make a good estimate but it is much smaller than the Grant and Thornton numbers of up to 64,100 direct and indirect jobs.

I think of the other ten current LNG "proposals", four may happen but I would not put money on them, and the six others are nothing more than ideas at this time, some of them not very serious.

The current timelines for all the LNG projects are very optimistic.   The track record of getting large natural resource projects from the drawing board to operation tends to almost always be longer than than originally envisaged.   In this case both projects need pipelines to be completed as well.  Pacific Northwest LNG is scheduled to be operational in late 2018 and LNG Canada in 2019.  I think a three year delay is realistic for the two projects based on timelines for LNG plants, pipelines, mines and other capital intensive natural resource sector projects in first world countries.   This means operational dates of 2021 and 2022 and construction starting in a 2016 to 2017 timeframe.

Both projects are currently designed to be constructed in phases and at least in the case of Canada LNG no certainty on the second phase at all.  I expect there to be a capacity of 18 mtpa in BC by 2021.  I think there is a moderate probability of Pacific Northwest LNG expanding to 12 or 18 mtpa by 2025/26.  18 mtpa is 24.5 billion cubic meters of natural gas.  BC will produce around 45 billion cubic meters of natural gas in 2014/14 which means this projects represent a bit more than 50% of the natural gas currently produced in BC.

Both companies list how many jobs their project is projected to create based on their first phases:
  • Pacific Northwest LNG projects 250 +-50 operations jobs and a peak of 3,500 construction jobs
  • LNG Canada projects 300 +-100 operations jobs and a peak of 5,500 construction jobs in Kitimat
  • The two pipelines should have about 3,800 to 4,900 construction jobs based on their own estimates.  
Here is my estimate of direct and indirect jobs from LNG - job means one full time position in a given year
Year    2016   2017   2018   2019   2020   2021 2022 2023 2024 
dir.   1,000  4,000  8,000 13,500 13,500  7,000 550* 550*  550*
indir. 1,900  7,500 15,000 25,300 25,300 13,000   x    x    x
total  2,900 11,500 23,000 38,800 38,800 20,000   x    x    x
* these are the direct jobs the companies estimate, I think there could more primary suppliers that should count as direct employment
x indirect employment is hard to estimate, see discussion below
For simplicity I assumed both projects come online January 1st 2022

Indirect employment in a large construction project is much easier to estimate than indirect employment at the operational stage.  I am using the same factor for indirect jobs that Grant and Thornton used because it broadly fits with BC Stats numbers.   That said, much of the indirect employment in the construction phase will not be in BC.  As an example, most of the parts will come from Asia.  It is hard to estimate how many of the indirect jobs will be in BC because we are not privy to the internal plans of the companies.  I think it is safe to assume that between 20% to 40% of the indirect construction work will be offshore.  It could be higher if fully finished sections of the plant are shipped from Asia.

On the operational end what should we count as indirect employment?  The natural gas production in BC or only an increase in natural gas production after the plants open?  All the people that supply natural gas production in BC, which is what Grant and Thornton seems to be doing to some extent? Are the direct jobs all the direct jobs or should some of the wholly dependent primary supplies be counted as direct jobs and how are they counted at the moment?

I could put numbers in for the indirect jobs for the operational era of the plants but they would be guesses.  Grant and Thornton had 25.7 times more indirect jobs than direct jobs for operations.   This factor seems suspicious to me.   If I were to apply it to the 550 operational jobs it would give us a number of 14,135 indirect jobs and this seems to be too many for the volume of natural gas involved.   Grant and Thornton do not provide anywhere close to enough data for me to be able to replicate their numbers.   Pacific Northwest LNG says there will be 200 to 300 indirect spin off jobs from their facility which sounds much too small to me though they could be talking about wholly dependent primary suppliers that should be counted as direct employment.  I think most of the indirect jobs in the Grant and Thornton report relate to jobs in natural gas production.  

I am not convinced that the existence of LNG plants in BC will mean an dramatic increase in natural gas production in this province.   In Canada we are likely to see the loss of our main market for natural gas in the next few years as the US ends up producing a lot more natural gas than they can consume.  The LNG plants may simply be an outlet for natural gas that becomes unmarketable in the rest of North America.

The normal number used via BC Stats to work out the impact of indirect employment in oil and gas is a factor of about 2.8, it varies based on where in the province you are.   The problem is that this factor is for the existing oil and gas extraction industry and not LNG.  If I were to use the 2.8 factor it could be completely off of the mark.

If I were generous and assume a total of 1,000 direct operational jobs from the companies and their wholly dependent primary suppliers and used a factor of 3 for indirect employment, I get to total of 4,000 ongoing permanent jobs.  I have no idea if I am in the ballpark, but I expect I am in the same city with the ballpark.   I am confident I am within astronomical accuracy 

I debated adding more construction jobs in the last two years to reflect a potential third LNG plant but I do not have data to justify making the leap of a third one being constructed, yet.  This could all change as we find out how serious or not the various companies are.  Projecting anything like this out ten years is always going to be highly speculative.   

It should be noted that the BC Stats population projections as of April 2013 out to 2036 do not show any significant growth in population in the Northwest

I do not work with induced employment numbers because I have yet to see any good quality academic grounding for the concept.  Induced jobs are ones that are claimed because the economy is larger due to the projects.  It is a logically false concept because the reasoning is circular.  One could make the argument that Starbucks causes induced demand in the natural resource sector.  Induced employment was created to make industries look more important than they are, it is a PR shell game and nothing more.
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