A few weeks ago, Canada’s liquefied natural gas industry was dealt yet another blow. The Shell-backed LNG Canada venture announced to the public that they had chosen to delay a final investment decision indefinitely. As was reported by the Canadian Press, “LNG Canada’s decision to put the project in Kitimat on hold amid weak global prices wasn’t surprising, but it adds to the pessimistic mood around the future of the sector in both BC and across the country.”
LNG Canada’s decision underscores a looming reality for Canada’s natural resource extraction industry. While other nations continue to make strides in developing economic activity through investment and government approval when it comes to the oil and gas sector, Canadian industry routinely finds itself mired in delays and missed opportunities.
Meanwhile, in the United States and other countries with LNG export capabilities, the picture is far brighter. This year, the United States began shale gas exports by sea and as Bloomberg reported, “is projected by the International Energy Agency to become the world’s third-largest liquefied natural gas supplier in five years.” Now, LNG coming from the US is adding to a growing global glut of LNG triggered by a combination of new Australian supply and weakening Asian consumption. To many, the new industry dynamics are evidence of how Canada fumbled a tremendous opportunity to access new markets and address its ‘one-buyer problem (with the US)’ and deal with its enormous natural gas supply glut.
In the same Bloomberg article, a senior gas analyst was quoted as saying, “The US clearly changed the picture, it’s going basically from zero to the third-largest LNG capacity holder in the space of five years and it brings a new flexible dimension to the LNG market.”
The infrastructure to enable the efficient transportation of global LNG has also been markedly improved. This week, Maran Gas Apollonia became the first LNG tanker to pass through the newly enlarged Panama Canal after picking up a cargo off the coast of Louisiana. By 2021, the EIA forecasts the US dispatching as many as 550 tankers a year through the waterway. With the upgrade, the Canal is now able to handle most of the world’s LNG tankers and will reduce time and costs for LNG cargoes enroute to destinations such as Chile and Japan.
Could these opportunities have instead been gleaned by Canada? Perhaps.
But it’s not just the LNG industry that’s reeling in Canada either. In Alberta, ConocoPhillips Canada recently announced three hundred more staff cuts. Company spokesman Rob Evans said the cuts are part of a global staff realignment to match future activity levels, with Canada looking less attractive than some of its other operations.
“Low commodity prices, combined with our inability to get product to new markets, has resulted in lower prices in Canada relative to other parts of the world,” Evans said. “Coupled with increased local cost pressures such as corporate taxes, regulatory compliance costs and property taxes, staying competitive in a global portfolio is a challenge for some parts of our Canadian business.”
Evans’ statements underscore the fact that it is not just the LNG industry taking a hit, but the upstream side of the business as well.
What’s more, as BOE Report Publisher Josh Groberman discussed in a past article, over the past two years, Canada and specifically Alberta, have seen an unprecedented exit of capital. The reason for this is four-fold: low commodity prices, higher operating costs, limited access to markets for their product, and an unfriendly political climate.
And while Alberta (and Canada) loses investment capital, others are receiving it.
Recently, it was announced that Chevron, Exxon Mobil and several partners committed $37 billion to expand an oil project in Kazakhstan, one of the largest investments since crude prices collapsed two years ago. In Egypt, BP gave the green light to a multibillion-dollar gas export expansion complex. As the Wall Street Journal reported, “this follows the U.K. oil giant’s announcement in June that it is fast-tracking a major offshore gas discovery in Egypt. Italy’s Eni SpA is moving ahead on an Egypt field as well.”
All else being equal, it seems ludicrous that jurisdictions such as Kazakhstan and Egypt are winning over that kind of investment rather than Canada. As any oil and gas industry commentator, analyst, executive, or journalist will tell you, it is not because Canada doesn’t need the economic boost that would result from such projects.
At what point will the tide turn for Canada? Hard to say. But until something triggers a renewed sense of urgency concerning the development of major energy sector projects (and I haven’t even touched on pipelines), Canada will continue to miss out on opportunity while others take advantage.