Canadian LNG export industry is still in the Race

An eventful week in LNG export industry development in Canada. The Petronas Northwest (PNW) Decision to not proceed with their project as previously planned sent a shudder through the province, the country and arguably the globe about whether LNG from B.C. would ever be reality. I have been asked on numerous occasions what does it mean while much, although not all, of the news coverage suggests the LNG ship has sailed and Canada isn't on it.  It is true that when the LNG export industry was most recently conceived at the beginning of this decade, the margins to export gas to Asia were much higher and the price of oil - to which many LNG contracts were linked - was much greater. At the same time, global competition for markets had not peaked. We are now in a different world as far as these forces are concerned. But that does not mean LNG from Canada does not have a chance. Reflect on the comments of Shell CEO Ben Van Beurden during Shell’s second quarter results: “ I think LNG Canada, I used to say, is the best project in Canada. I can probably now say It’s the only remaining project in Canada. And we are still looking to sort of refine the plans for it by taking cost out further. We were clearly not at the point that this was considered to be competitive enough when the industry started to change on us.” He then goes on to describe the two things that need to happen to move the LNG Canada project ahead: first, a break-even price that is resilient during down cycles and second, the right timing. On the first point, the process LNG Canada is in to achieve a competitive price for its EPC contract is fundamental to success as well as mitigations to avoid future cost increases both during construction (e.g. labour costs) and operations (e.g taxes). On timing, Ben suggests that an investment decision in the next 18 months could enable the project to start producing “right at the moment when the market, spot market, short-term market, is getting very tight, again.” So while the news of the PNW decision may have sent shock waves, it’s much too soon to suggest that LNG from Canada can’t happen. It can and hundreds of people are working every day to see that it does by finding ways to drive down costs and increase both CAPEX and OPEX certainty.