Thursday, March 6, 2014

My work on LNG in BC

Over the last two weeks I have tried to use the data I can find to analyse the LNG business in BC.   I had assumed that in the run up to the 2013 election the Liberal focus on LNG was an election hype hail Mary and the prudent thing for them to do in 2014 was to reduce public expectations but this has not been the case.

So where will LNG in BC be by 2024?  I think it is not unreasonable to expect BC to be home to some LNG export terminals but not nearly as many as the government used in their analysis of of the benefits of the industry.  I really have been less than impressed with the reports done for the government in early 2013 measuring the impacts of LNG on jobs and government revenues.   I wanted better data to work look at.

A problem I was having was getting good information on what LNG is likely to mean for BC and it is because of this I thought I would see what I could out together   I looked for data on the global industry and the LNG situation in BC and tried analyse that data.

Here is a list with links to that work I did:

The Quick Summary:

  • Overall I think we are only likely to see two LNG plants by 2024.  Of the 12 listed proposals I only think six are reasonably serious at this time.
  • Using various equivalent examples, it is unlikely that any LNG plant will be operational before late 2020.
  • BC LNG needs a price differential of around $7.50/MMbtu between the spot price in North America and what the customers are willing to pay in Asia to be profitable.  That is available at the moment but that price differential has not historically been available.  The global price of LNG is very much influx with few people having any long term confidence what the market will do.
  • BC LNG has advantages from being closer to Japan and South Korea than the major competitors and from a cooler ambient temperature which slightly reduces the cost to make LNG.
  • BC LNG has disadvantages because of the increased capital cost from needing new pipelines to supply the plants and an uncertainty of where long term natural gas prices will be in North America.
  • It seems the long term jobs will be lower than most estimates based on two larger scale LNG plants.  This is because all the analysis I have seen indicate most of the jobs related to LNG plants come from the natural gas extraction end of the equation and it is not clear that BC LNG will significantly increase the natural gas production in BC.

I have some more analysis to do.  The first is the probable tax revenues from LNG in BC to 2024.   Ballpark I think the direct taxation from the production of LNG is likely to be in the range of $150,000,000 to $180,000,000 per year in 2024.   This is only a very small overall increase in BC government revenues and not at all enough to make the prosperity fund idea work.    Could the LNG plants cause a lot more government revenues from natural gas extraction?  That is something I trying to work out but my early analysis is not indicating this is likely.

The second is what is the impact on natural gas extraction volumes in BC is from LNG plants.  With the huge boom in natural gas in North America it is very possible that all BC LNG plants would do is offer a new market for existing production.  Even if all the LNG was supplied from new natural gas sources the scale of LNG that seems to be likely in BC is not enough to dramatically increase natural gas production levels in the province.

One thing I have not been able to do is work out in the construction phase how much of the plant infrastructure will be constructed in BC and how much of it in Asia.   I have seen unconfirmed figures that around 30% of the capital costs for a large LNG plant is likely to be spent in Asia but without more data to back this up I can not do more analysis on that.

The scale of capital spending in Asia does have a very significant impact on indirect jobs created by LNG plant construction and therefore the jobs benefit to people in BC.

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