A sharp drop in oil prices and continued low natural gas prices have led to reduced forecasts of drilling activity in Western Canada for 2015. In Victoria, critics of the B.C. government's push for liquefied natural gas exports have begun to claim that delayed investment decisions by LNG producers are the beginning of the end for the industry in B.C.
David Keane, president of the BC LNG Alliance, has worked for major industry players and now represents an association of seven international proponents, Kitimat LNG, LNG Canada, Pacific Northwest LNG, Prince Rupert LNG, Triton LNG, Woodfibre LNG and ExxonMobil. This week he discussed B.C.'s prospects with Black Press legislature reporter Tom Fletcher.
TF: What's the impact of the recent low oil prices on these kinds of investments?
DK: I remind people that these companies are not going to be making long-term economic decisions based on the spot price of crude oil, regardless of whether it is $120 a barrel or $45 a barrel. They're going to make their long-term economic decisions based on their long-term forecasts.
I still think that B.C., in spite of the fact that the price of oil has come down, is in a very good position to be able to capture some of the increasing demand for LNG that's going to be taking place over the next decade. There are a number of reasons for that.
We have a tremendous natural gas supply base, we have a highly educated workforce, we have a very supportive provincial and federal government in terms of producing the natural gas, developing LNG facilities and exporting it to the big Asian markets.
Another point I think is worth noting is that we're in competition with the U.S. Gulf Coast, Australia, East Africa, Middle East and Russia, and when you look the North Coast of B.C., we get about a 25 per cent increase in production capacity simply because of the colder ambient temperature. So the same amount of investment that you might make in Australia or East Africa or the U.S. Gulf Coast, in British Columbia you get a 25 per cent uplift in production.
Last but not least is the proximity to Asian markets. When you look at how close we are to those markets, I firmly believe that we're going to capture a good bit of the increasing demand that will occur in Asia.
TF: Premier Christy Clark refers the U.S. being our big competition now. Shell recently made a decision to cancel an Australian project and indicated they were concentrating on B.C. and a U.S. site. Is the U.S. the main competition?
DK: I think so right now. When you look at the U.S. Gulf Coast, their LNG tankers have to go through the Panama Canal, and there are still long distances to get to the Asian markets.
TF: One barometer of how things are going is gas drilling activity in Northeast B.C. Can you comment on that?
DK: If we get just one of these large LNG facilities to declare a final investment decision, that will require the largest single investment ever in British Columbia. And I've been saying when I'm asked that we'll get seven, because we have seven members, that will go to final investment decisions over the next few years, and I think that will increase drilling activity dramatically.
We have our internal market in Canada, and our external market is the United States, where the demand for Canadian natural gas is declining. So we have to find a way to get our natural gas to market, which is liquefaction and transporting it to market, primarily across the Pacific.
TF: Your alliance is beginning an advertising campaign. What's the focus of that?
DK: The advertising campaign is meant to help inform British Columbians about what natural gas is, how it's safely produced and safely transported. It has been safely transported in B.C. for 60-plus years. It's to help inform people about the benefits that will accrue to the province and to them as a result of development of a robust LNG industry, and about all of the safety aspects, from natural gas production, to pipelines to the liquefaction facilities themselves, to the marine transportation of LNG.
TF: Are pipeline rights of way being settled?
DK: Chevron just concluded its 16th agreement with the 16 First Nations that are along the Pacific Trails pipeline, which will serve Kitimat LNG. All of the pipelines are working hard with their First Nations partners and I think that if we as an LNG industry can demonstrate long-term sustainable, real economic value to the First Nations, and when we demonstrate that LNG can be produced in a safe and environmentally sound manner, I think First Nations will support the development of the industry.
TF: The new CEO of Petronas is coming over for another visit soon. Is that an indication that they're getting close, or that this slump in oil prices isn't as big a deal as some people make it out to be?
DK: I can't talk specifically about that. But I'm encouraged by what I see with all of our members, in terms of the work that they're doing to move their projects forward.