Big LNG project delayed

LNG Canada is delaying its decision to build a $50 billion export facility in Kitimat until the end of 2017, the company announced this July 11. The facility was expected to export 24 million tonnes annually and be supplied by a $4.7-billion pipeline built by partner Coastal Gas Link. Construction was expected to begin at the end of 2016.

The proposed facility passed regulatory approvals and maintains it has stakeholder and First Nations’ support. It had also secured crucial commercial and engineering contracts, which would ensure that LNG could be processed and sold once the facility was operating.

While Christy Clark’s Liberals have promised 100,000 jobs in LNG, the party is facing an election in May 2017 with no LNG revenues and no export facilities underway. The downfall of LNG can be attributed in part to a global glut in supply.

US and Australian LNG supplies have outstripped demand, causing Asian prices to plummet to a seven-year low. In May 2016 the current market price for delivery dropped to $4.241 per million British thermal units, representing a 42.5% price drop compared to May 2015. This was the lowest monthly average price since July 2009.

The delayed Kitimat project is expected to spring to life should the market recover, however LNG prices are not about to bounce back anytime soon as major suppliers continue to come online, fighting for market share. Furthermore, LNG facilities cost billions of dollars and take years to build, and companies cannot afford to curtail output once they are running.

Even though LNG Canada is delaying its decision, it will continue to prepare the site in Kitimat. LNG Canada’s stakeholders are Shell (50%), PetroChina (20%), Mitsubishi Corporation (15%) and Kogas (15%).