Natural Gas and the LNG Opportunity in British Columbia
DID YOU KNOW?
B.C.’s Natural Gas
- Production – 1.8 trillion cubic feet (Tcf) per year – a 32 per cent of Canada’s overall natural gas production (source: CAPP).
- Natural gas is significant part of B.C.’s clean energy export economy. 68 per cent of the natural gas produced in B.C. is delivered to other regions of Canada and 23 per cent is exported to the U.S. and 10 per cent is consumed within B.C. (source: Government of B.C.)
- In 2019/20 the B.C. government is expected to receive about $575 million in revenue (land sales and royalties) from oil and natural gas activity.
B.C.’s LNG Opportunity
As global economies re-open in the post-pandemic period, natural gas demand is expected to rebound and long-term demand will be sustained due to population growth and rising standards of living. This growing global demand for natural gas has created a unique opportunity for Canada to develop a domestic LNG industry.
Much of Canada’s natural gas lies in Alberta and British Columbia, close to the West Coast where LNG plants and marine shipping facilities can be built with an aim to supply natural gas to overseas markets.
Over the past decade, about 20 LNG facilities were proposed in B.C. but due to poor economics and regulatory uncertainty, many of these projects have been deferred or cancelled.
Among the current B.C. LNG facilities proposed, under construction or operating are:
WOODFIBRE LNG (SQUAMISH B.C.)
Plans to export about 2.1 million tonnes per annum (MTPA) over 40 years, or about 300 million cubic feet per day (MMcf/d). Awaiting final investment decision to proceed with construction.
LNG CANADA (KITIMAT B.C.)
Canada’s largest LNG project, under construction and is planned to be in operation in 2025. Phase 1 has two liquefaction trains with a capacity of seven MTPA each, or about 850 MMcf/d.
TILBURY ISLAND (NEAR VANCOUVER)
Since 1971, FortisBC has operated a facility that supplies LNG domestically to fuel trucks, buses and ferries. The facility was recently expanded and a small amount of this increased production is being shipped to China’s Top Speed Energy (TSE). In February 2020, Fortis filed plans with the Impact Assessment Agency of Canada and the B.C. Environmental Assessment Office to further expand the facility’s capacity. In partnership with TSE, Fortis is planning another small LNG facility at Terrace, B.C. If approved, construction could begin in 2021 with operations (limited marine fuelling) beginning as early as 2022. (source: Tilbury Pacific).
The Haisla Nation holding the majority investment stake, Cedar LNG will be the first majority Indigenous-owned LNG export facility in Canada. Located in Douglas Channel near Kitimat, this floating LNG plant will be designed to receive up to 400 million cubic feet per day of natural gas, to produce approximately 3 to 4 million tonnes of LNG per year for export. The project has been granted a natural gas export licence and has started both provincial and federal environmental impact assessments.
WHY CANADA’S NATURAL GAS AND LNG IS BETTER
Canada’s standards governing exploration, production, transport and use of hydrocarbon resources are rigorous — more so than most other natural gas and LNG producing nations such as Russia, Qatar and the U.S. Canada’s industry also has other advantages that make our natural gas and LNG desirable on the world market:
- The availability of a huge, high-quality natural gas resource in B.C. and Alberta can enable Canada to be a reliable and competitive supplier to global markets.
- Standards in B.C. and Alberta that regulate flaring and venting are among the most stringent in the world, resulting in reduced GHG emissions from upstream production.
- LNG facilities on Canada’s West Coast are closer to Asia than any other North American LNG source, particularly those on the U.S. Gulf Coast that must ship via the Panama Canal to access Asian markets. Shorter distances result in lower cost and emissions from marine transport.
- LNG facilities in B.C. have lower operating cost for liquefaction because the average temperature is 7 degrees Celsius versus 27 degrees for Australia and 22 degrees for Louisiana. Lower ambient temperature means lower energy requirements for liquefaction: liquefaction can be up to 30 per cent less expensive in B.C.
Among the World’s Cleanest LNG
A 2018 Delphi Group study found the GHG intensity performance of 19 LNG facilities around the world ranged from about 0.15 tonnes of GHG emissions per tonne of LNG produced (for the LNG Canada plant) to 0.44, and as high as about 0.70.
Minimizing emissions from upstream natural gas production is vital to achieving world-class low emissions intensity across the LNG life cycle. Producers of natural gas in northeastern B.C. can realize GHG reductions by switching power needed to operate compressors and other equipment from natural gas and diesel to electricity derived from hydro and other sources.
In August 2019, the B.C. and federal governments committed to electrifying the natural gas value chain with a memorandum of understanding to power the province’s natural gas and LNG production with clean electricity. Some producers have already made significant strides to electrify their upstream operations.
Ongoing reduction of fugitive methane emissions is another pathway to reducing life-cycle emissions for LNG production and export.
ADDRESSING GLOBAL EMISSIONS
Canada’s facilities will produce LNG with some of the lowest emissions anywhere in the world: 35 per cent lower than the best-performing LNG projects and up to 60 per cent lower than the overall global average. B.C. also has tremendous expertise, technology and exceptional standards for responsible resource production. B.C.’s GHG Industrial Reporting and Control Act mandates LNG facilities in the province to meet a world-leading emissions benchmark of 0.16 tonnes of carbon dioxide equivalent for each tonne of LNG produced.
Natural Gas Burns Cleaner than Coal
Because natural gas burns 50 per cent cleaner than coal, Canadian LNG can be used in Asia-Pacific markets to displace coal-fired electricity generation, creating jobs and prosperity at home while significantly reducing global GHG emissions.
Lifecycle emissions within Canada will increase when projects currently proposed or under construction begin operation. However, when Canadian LNG is exported and used as an alternative to coal-fired power generation in global markets, this exported LNG will displace higher GHG emissions in overseas markets, resulting in significant net global emission savings. In other words, an increase in Canadian domestic emissions will be more than offset by a large net reduction in global emissions.
Generating Canadian Prosperity
Royalty payments to the B.C. government are linked to natural gas prices so recent declines in royalty revenues are the direct result of a significant decline in natural gas prices since 2006. For example, a 25-cent change in the natural gas price impacts government revenues by $30 million to $50 million annually (source: Bloomberg and B.C. budget estimates).
But a thriving LNG industy in B.C. would reverse that trend. As we emerge from the economic challenges brought about by the global pandemic, a thriving LNG industry could generate more than $500 billion in new investment, creating some 100,000 jobs across Canada and providing annual tax and royalty payments estimated to exceed $2.3 billion (source: Conference Board of Canada). The LNG sector would become one of the largest revenue generators in British Columbia — and Canada.
Benefitting Indigenous Communities
Indigenous communities in B.C. will also see a significant increase in economic benefits, skills training and environmental stewardship if proposed natural gas pipelines and LNG projects within their traditional territories proceed. For example nearly 90 per cent of the 32 First Nations in B.C. with proposed pipelines through their traditional territories have indicated their support through one or more pipeline benefits agreements (source: Government of British Columbia).
The global LNG industry is extremely competitive and global investors look for jurisdictions with competitive attributes such as location, natural gas supply, a strong pool of skilled labour and supportive taxation and other policies. While B.C. meets many of these criteria – for example, B.C. has vast resources of natural gas and geographic advantage that helps lower cost to access Asian markets – creating a large LNG industry in B.C. faces a number of challenges.
While the ongoing operation of LNG terminals generally falls under provincial regulation, most LNG project proposals require both federal and provincial environmental assessments and permits.
Most of the proposed LNG facilities located on the west coast require new pipelines to carry natural gas across significant distances from producing regions in the northeast portion of the province and in Alberta. Intra-provincial pipelines are provincially regulated, while pipelines that cross a provincial or international border are federally regulated. In either circumstance, the lack of predictable and timely regulatory processes for new linear energy infrastructure has contributed to the overall uncertainty in the industry.
Canada’s uncompetitive tax and fiscal environment poses another barrier to a successful, sustainable Canadian LNG industry.
B.C. has shown strong leadership on environmental, climate, and indigenous goals, passing new laws, regulations and policies to define B.C.’s environment, social and governance (ESG) performance. Industry acknowledges and supports the continuous improvement approach and shares government’s desire to see B.C.’s resource industries as world leading suppliers of low carbon energy for the future.
Developing B.C.’s extensive natural gas resource will create good, sustainable jobs for Canadians and provide clean, affordable energy to emerging economies such as India. In addition, LNG made from responsibly produced Canadian natural gas can help reduce global emissions by replacing coal-fired electricity generation, especially in China, India and other Asia-Pacific countries.