Dec 10, 2013–The following two articles appear in the Globe and Mail. They analyze the economic prospects for LNG projects in British Columbia. Premier Christy Clark and her Liberal government sell these climate-wrecking and First Nations rights-violating projects as economic salvation for the province. But that’s merely a sales pitch. The projects are nothing more than a get-rich-quick resource grab by the world’s fossil fuel giants. The Liberals’ corporate backers are anxiously looking for the crumbs from the big–very big–table.–website editors
Heads up, B.C.: ‘Buyer’s club’ threatens Asian LNG pricing
By Carl Mortished, special to The Globe and Mail, Dec. 06 2013
LONDON–As British Columbia’s government gloats over the potential tax booty from selling liquefied natural gas to Asian power generators, it should cast a watchful eye over its shoulder to New Delhi, where a group of Asian governments have been chewing over the idea of an LNG buyer’s club, a sort of OPEC-in-reverse that would seek to get better terms from gas exporters in the region.
This week’s talks between Indian, South Korean, Japanese, Chinese and Taiwanese gas buyers are being held in the wake of soaring prices for LNG which are currently close to $19 per million BTU, a level that is almost five times the cost of natural gas at Henry Hub, the U.S. benchmark. Hardly surprising, then, that Asian governments are discussing drastic solutions and reports from Delhi suggest that India and Japan are already thinking about combined LNG tenders, in an effort to keep a lid on prices.
Japan’s loss of nuclear power capacity, following the earthquake in 2011, has increased demand for natural gas in East Asia. But LNG, the only viable form in which gas can be widely traded in the region, is in short supply. There are huge projects underway in Australia, Mozambique and Russia which will bring new resources to the market, in addition to the proposed U.S. and Canadian exports, but these will not be available for two or three years. Meanwhile, Asian power companies are expressing disquiet about the terms on which they buy fuel – notably price indexation to crude oil and destination clauses in long-term contracts, which prevent the formation of a liquid trading market for LNG.
Gas industry skeptics reckon that the buyers’ club will struggle to get off the ground. The countries are too different in terms of their energy economies and commercial cultures to form solid alliances. While India has a reputation as a tough negotiator on imported fuel contracts, and is prepared to tolerate power blackouts rather than pay for immediate supply, for Japan power shortages would be unacceptable and the country has always been prepared to pay heavily for long-term security.
Nevertheless, impatience over long-term price indexing of gas to crude oil is gaining ground. OAO Gazprom and the European Commission are currently deep in negotiations in an effort to head off a formal prosecution of the Russian utility by DG Competition, the EU’s anti-trust enforcer, for abusing its dominant position. The main complaints are restrictions on resale of gas shipments and oil indexation. Following the financial crash, Gazprom was forced to offer rebates to major gas buyers in Europe as demand for its fuel plummeted. The company is also under pressure at home to allow rival Russian gas producers access to export markets. Japanese and Indian companies are reported to be considering taking stakes in Yamal LNG, a Siberian project led by Novatek, Gazprom’s Russian gas rival, which has secured President Putin’s blessing in its quest for gas export markets. Cargoes of Norwegian LNG are already finding their way to Asia during the summer using a Northeast route through the Russian Arctic.
It is projects such as Yamal, and Gazprom’s negotiation with the EU competition directorate, which may have more influence on the price of Asian LNG than the co-ordination of purchases by Asian power generators. Efforts by European utilities to act jointly in relation to Gazprom have repeatedly failed, as the Russian exporter was able to use its dominant position to divide and rule its customers. Market dynamics and the power of a unitary regulator have changed the balance of power in Europe’s gas market. Asia lacks such a regulatory authority, but the arrival of new sources of supply from Africa, America and Russia will change the balance of power, just as Canada’s nascent gas export industry begins to find its way across the Pacific.
From comments:
No kidding. Remember when Tumbler Ridge [coal] was going to be the answer to all of BCs financial needs? Billions went into infrastructure on the assumption that Japan was too stupid not to continue to overpay for coal even after an oversupply came on the market. Now the same thing is happening with LNG.
Why do BC right leaning governments confuse resource development (good) with get rich quick schemes (bad)?
Clark casts doubt on Asian countries’ plans to set LNG prices
Premier not concerned with efforts by buyers’ club in Asian nations trying to drive down prices
By JUSTINE HUNTER, The Globe and Mail December 10, 2013
Premier Christy Clark says she is confident that British Columbia need not fear efforts by potential customers to establish a so-called buyers’ club for liquefied natural gas.
Gas buyers from China, South Korea and Japan – the three countries Ms. Clark just visited on a trade mission to promote LNG – as well as India and Taiwan met last week to discuss how they can use their collective purchasing power to negotiate lower prices. They scheduled a follow-up meeting for February. There are reports that India and Japan are considering combined LNG tenders, hoping to decouple the price of gas from the price of crude oil. It is that linkage that underpins the B.C. economic case for LNG – currently Asian prices for natural gas are five times higher than in North America.
“I don’t know that there will be a buyers’ club – I don’t know all the competitors in Asia will be able to get together to set those prices,” Ms. Clark said in an interview in her legislature office on Monday. “Typically when it comes to energy exports, it has been the seller that sets the prices.”
Ms. Clark ran her successful election campaign last spring on the promise of a “trillion-dollar” LNG industry that could eliminate the provincial debt. Since then, however, negotiations with industry about a B.C. tax regime have bogged down. Ms. Clark had hoped to have the framework for the tax and regulatory landscape in place prior to her trip. Now it is not expected to be unveiled until early in 2014.
There have been very few final investment decisions on LNG in the past two years, creating growing pressure on the countries that are vying to produce LNG for Asia to secure contracts. The Premier said it is all part of the nature of a high-stakes negotiation.
“We have to be competitive, there is no doubt about it. If we want to attract that quantum of investment – and it’s huge, potentially – we have to be selling at a price the market wants to buy at but this is the way negotiations work,” Ms. Clark said. “Buyers want it cheaper and the sellers always want it to be a little more expensive. So that’s where we are at, at the moment.”
While Ms. Clark’s government has been very eager to trumpet the financial benefits of LNG, it has been less enthusiastic about discussing the potential greenhouse-gas emissions associated with the sector.
The B.C. government hired two accounting firms earlier this year to help estimate the potential revenue of five LNG facilities on the West Coast – although there are currently a dozen proposals – and has published those findings. The Premier has even announced the creation of the B.C. Prosperity Fund to collect industry revenue and steer some of it toward debt reduction.
However, the province has refused to release its own studies on the environmental impact of developing LNG. A recent report out of Harvard, published in the National Academy of Sciences, found methane that is leaked or vented during oil and gas production may be up to five times greater than current estimates. If that is the case, that would undermine Ms. Clark’s argument that B.C. natural gas is a cleaner alternative to coal.
Ms. Clark maintained on Monday that her government is “paying close attention to the total environmental impact of developing liquefied natural gas.”
She said she had not read the Harvard report. “I suspect they are referencing environmental conditions that don’t exist in British Columbia. … We’ve been doing this for 50 years, we have a pretty good idea of the GHG emissions from different reservoirs of natural gas in the province.”
The province has to meet GHG reduction targets by 2020 by law, but the Premier has not yet said how her government will measure the emissions from LNG. She has promised that the facilities will be “among” the cleanest in the world but she does not count the significant upstream emissions that come from getting natural gas out of the ground and transporting it to those facilities for processing.
But, she added: “We do see it as the biggest opportunity we have ever had as a province to reduce greenhouse-gas emissions around the globe. … And we intend to take it.”
