LNG Canada Is Another Multiple Win for Consumers, Workers, Business, Environment

Commentary, Energy, Ian Madsen

Recently, the consortium of large multinational firms (Shell, PetroChina, Petronas of Malaysia, Korea Gas, Mitsubishi) that collectively own pieces of the planned LNG Canada project to be built at Kitimat on the northwest coast of British Columbia, announced that contracts had been signed for construction work camps. Detailed engineering contracts were already awarded in April. TransCanada Corp. is primed to construct the 670 km pipeline to bring northeast BC and northwest Alberta gas to Kitimat.  

The entire project will cost about $40 billion. While much of it will be spent on specialized processing units, some of them very large, that Canada does not presently have the capacity to build, a lot of it will be spent in BC, Alberta, and in the rest of Canada, and on wages for Canadian workers and supplies and services from Canadian firms. This will be a major infusion of money into local and regional economies.

The initial capacity will be two ‘trains’ each cooling and compressing 6.5 megatonnes of natural gas annually, or a total of 272 million gigajoules (GJ) each, a total of 1.57 million GJ or 1.57 million mcf (thousand cubic feet) daily. There is potential to add two more trains of similar capacity each.

This matters because this volume is that much which is not, at present, able to reach markets either in Canada or the United States, let alone East Asia, the final destination for LNG Canada’s output. According to oilprice.com, liquefied natural gas prices spiked at USD$11.60 per MBtu (roughly equal to a GJ), or about CAD$15. As shareholdersuite.com estimates it costs about USD$2.15 to liquefy, to re-gasify on the other end, and to ship the stuff 7,000 km to Japan, that leaves about USD$9.45 in sales price, or CAD$12, which is about nine times the dismal $1.40-$1.70 range of this current year.  

Even if LNG prices in Asia sag again, to the USD$8 they were a few years ago, Canadian gas could still, theoretically, net close to CAD$6 per GJ, MBtu or mcf. This is important not just to Canadian oil and gas producers, pipeline companies, LNG Canada, and their employees and shareholders, but to all Canadians, especially those who are environmentally conscious. Consumers will still pay low prices.

Natural gas is rapidly displacing coal as an electric power generation fuel. Coal is by far the dirtiest fuel on the planet (save wood, dung, and garbage), and a huge source of pollution and ash waste in China, India, and other developing nations. Many more coal-burning plants are planned for those places, as there has been little commercial alternative, until now. These coal plants are not just a health hazard, but the largest single source of the main greenhouse gas: carbon dioxide (CO2).

Hydraulic fracturing (fracking) and horizontal drilling, along with other advances, have brought shale formations with huge reserves of natural gas and liquid petroleum to commercial viability in the United States, Canada, and, preliminarily, in Argentina, China, and elsewhere. The US is already shipping from Pacific, Gulf, and, soon, Atlantic LNG terminals. Canada has been very late to fully capitalize on the potential: prices that are quadruple or more than domestic, and the desperate demand for clean fuel.  

The cash generated from freeing the gas bottled up in Canada will put the producers in better bargaining position with Canadian and US buyers, too. It will also mean, since it will become more valuable, less gas flared off or leaked, reducing greenhouse emissions further (methane, natural gas, is thirty times more potent in greenhouse terms than CO2 is). Increased use of abundant (we have hundreds of years of reserves) natural gas in power, transportation, and as a flexible fuel for backup power generation for wind and solar, will displace more coal and eventually oil. Canada’s regulatory and structural obstacles to LNG development have, optimistically, run their course. Clean energy, and benefits for all, beckon.