Is liquefied natural gas (LNG) a golden opportunity for the Maritimes? You’d certainly think so given the hype surrounding several LNG projects being worked on around the region, including the Irving/Repsol joint venture and the Anadarko project proposed for the Strait of Canso area.
That there is an opportunity is undeniable. Natural gas is a hot property these days; among its many virtues it’s more environmentally friendly than either coal or oil and less politically-charged than nuclear.
But while we in North America consume a quarter of the gas used worldwide, we only have two percent of the world’s reserves. The big gas reserves are in places like Russia, the Middle East and Asia. But you can’t build pipelines from these remote locations halfway around the world to where markets are. So how do you get the gas to market?
Shipping would work, except that gas in its natural state couldn’t be shipped economically. The solution? Make the gas denser by cooling it to a liquid state.
The LNG business today thus sees ships afloat carrying the equivalent of 2.8-billion cubic feet of gas; ships with a capacity of 4.3-billion cubic feet may soon join them. These specially-constructed vessels are filled with gas at a liquefaction plant near the source of the natural gas, in places like Indonesia, Algeria or Qatar. They then travel to their destination and are unloaded at a regasification facility, turned back into gas, which is then passed along to the consumer by the usual distribution system.
So thanks to demand, technology and high prices, LNG is fashionable. Many people want a piece of this action. An average of US$4 billion annually has gone into new infrastructure during the past five years; nearly $250 billion will be invested over the next 30. But when this much money is on the table, people get a bit silly.
There are nearly sixty LNG terminals proposed for North America, of which three are located in Atlantic Canada. The capacity of all proposed projects put together is greater than total current North American gas consumption. Many industry observers believe that the North American market will only need 6 to 8 new regasification terminals, at least in the medium term. Will the proposed projects in Saint John, the Straits and possibly Goldboro be among them?
A regasification facility is only one piece in a long chain of business and infrastructure decisions, and every one of those pieces has to make economic sense. Looking just at a regasification plant, you need a contracted source of supply. But for the next five years, because it takes a while to build ships and liquefaction plants, there is very little uncommitted LNG. No one is going to finance a regasification plant if they cannot be assured of a supply of LNG to regasify.
Similarly, you must have customers willing to make long-term commitments to take the gas, and you must be able to get it to them at a competitive price. In this region, our opportunity lies in the US Northeast market. They badly need gas, and prices are high. But everybody wants to serve that market for just that reason, and there are a lot of proposals to do so. That’s why it is said that there is a big advantage for the first few suppliers into the market. They’ll get the best customers and lock them in at a premium price, before more LNG capacity drives prices down.
But there are other potential suppliers to that market. For example, along the US Gulf Coast existing LNG capacity is being expanded, and they have some low-cost pipeline capacity reaching all the way to the northeast. Our pipeline’s expensive, but we’re much closer by sea to the Middle East, Russia and Algeria. We also don’t face local opposition the way that project proponents in the northeast do. So we have a case, but it’s not an overwhelming one, and time is not our friend.
But let’s understand the real nature of the opportunity. The average LNG terminal employs about 600 people to build, and about 40 to run it. Direct job creation is not why we want LNG. We should want LNG for the connection it gives us to world energy markets and the diversification of fuel supplies it offers us, including for local power generation. We have wrestled for years with uncompetitive energy costs, and LNG is part of the solution. We’ll also build our growing role as an energy hub, and might even find that there are opportunities processing natural gas liquids here.
LNG would be good for the region, but the opportunity is a fleeting one, and there are still many regulatory and business hurdles to leap before any LNG gets processed here, and that’s worrisome given our poor regulatory record, including in the offshore. The stakes are big and the clock is ticking.
Brian Lee Crowley is president of the Atlantic Institute for Market Studies (www.aims.ca), a public policy think tank in Halifax. E-mail: [email protected]
This column appeared in the Saint John Times & Transcript (www.canadaeast.com) and the Halifax Chronicle-Herald (www.herald.ns.ca) on Wednesday, June 29, 2005.