Canada is a “late entrant” to the global LNG market, according to a new report from the National Energy Board (NEB), and the next few years will be critical to the development of the industry. The next window for new investment may be as long as 10 to 15 years away, say energy economists, and that may cause problems for Alberta, which needs a methane market for its growing petrochemicals industry.

“In recent years, there have been a number of LNG projects proposed in Canada, and significant investments have been made into their planning and approval,” said Shelley Milutinovic, NEB’s chief economist. “Despite this, Canada has yet to emerge as an active participant in the increasingly competitive global LNG market, but proponents are still actively working on projects on both coasts.”

The world of natural gas still turns on a contract basis, according to economist Michal C. Moore, and that means the market will be dominated by the first-movers.

“Right now, the combination of getting easy shipping access and a head-start on construction down in the Gulf Coast is certainly favoring the U.S. shippers,” the Cornell lecturer said in an interview.

A recent trade deal between China and the U.S. featured 24-year contracts, something China was reluctant to do until recently, and the right to invest in American LNG facilities.

“The ability to cut the shipping cost by having the new Panamax plus ships that can get in and out of the Gulf Coast and out into the Asian-Pacific market much more easily is making this a very fertile market for the future,” Moore said.

Jennifer Winter, an economic professor at the School of Public Policy, University of Calgary, isn’t certain China will turn out to be the market bonanza Canadians think it is.

“China tends to be a lot more strategic in their energy choices,” she said in an interview. “I think the fact that they would have to import quite a bit of natural gas could mean that they still go with coal, just invest really heavily in carbon capture and storage in order to reduce emissions from coal-based electricity.”

Canada already has a hard time competing, according to Winter. Advantages include abundant and low-cost natural gas supplies in B.C., where LNG plants have a shorter shipping distance to Asian markets, while facilities while East Coast projects will have a shorter shipping distance to Europe. But those advantages are offset by eroding margins caused by the fall of LNG prices in the past few years and the greater competition has made customers reluctant to sign long-term contracts with the fledgling Canadian industry.

“Canada has some benefits but we are a more challenging environment, especially because it is a new industry for BC,” Winter said.

British Columbia’s challenges may prove to have significant consequences for neighboring Alberta’s ambitions to grow its petrochemical sector. The provincial government recently launched the Petrochemical Diversification Program, which awarded two companies grants that of $500 million to support the construction of two facilities that will employ 1,400 workers combined.

An economic diversification committee report due in August is expected to recommend expanding support for petrochemicals. Allan Fogwill, CEO of the Canadian Energy Research Institute, said the lack of subsidies from Canadian governments relative to the U.S. has been a major obstacle to growth.

“There's much more active engagement by U.S. state governments to provide financial and other support to new investment than there has been in Canada,” Fogwill said. “There is government support for petrochemical development through various types of incentives, which could arrange from direct cash injections to tax credits to support for training. And it is more prevalent to find those government support mechanisms in other jurisdictions as compared to Alberta and Ontario.”

But another significant challenge to Alberta petrochemical industry growth is finding a home for the methane that is stripped from the gas. “In order to get the natural gas liquids [mostly ethane, propane, butane] for petrochemicals, there needs to be a market for the natural gas,” Fogwill said.

Unfortunately for Alberta, the traditional natural gas market in the American Midwest is beginning to shrink, under pressure from cheap shale gas that is produced much closer to market. Maria Sanchez, Drillinginfo’s energy analysis manager, expects Canadian exports to shrink by as much as 75% over the next five years.

“If you don't have a market for the methane, you're going to be limited in how much of the liquids you can produce. So there are discussions that are starting amongst the sector in terms of long-term development. What are we going to do with the methane?” asks Fogwill.

West Coast LNG plants would have been the perfect solution to Alberta’s problem. But

the only projects to receive a positive final investment decision thus far are the small Woodfibre LNG plant near Squamish, B.C., licensed to export about 2.1 million tonnes of LNG per year for 40 years, and a $400 million upgrade to FortisBC’s Tillbury plant near Vancouver, which currently liquefies 5,000 gigajoules (GJ) per day, and will add another 34,000 GJ per day.

The NEB has received 43 LNG export license applications since 2010 and approved 35. Of the 24 currently planned projects, 18 are slated for the West Coast in British Columbia and the rest are intended for Quebec and the Maritime provinces on the East Coast.

The $27 billion Pacific Northwest LNG project near Prince Rupert, B.C. was granted conditional federal approval and a 40-year export license, but has run afoul of indigenous communities who want the plant site moved off an environmentally and culturally sensitive island. The project still requires a final investment decision by the parent company, Malaysian LNG giant Petronas.

One of the impediments to timely decisions has been Canadian regulation, which includes environmental assessments from both federal and provincial governments.

“Like it or not, Canada’s environmental regulatory process is slower and more cumbersome than our competitors. Not Australia, perhaps, but certainly Africa, the Middle East, and the U.S.,” Winter said.

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