Coastal communities and First Nations should applaud every time natural gas prices drop – as prices tank, so do the odds that Liquefied Natural Gas (LNG) projects, such as those proposed for Kitimat and Texada Island will be built.

Natural gas is trading near a six-year low and no one expects prices to rise any time soon. There is just too much gas. This is great news for British Columbians concerned about large and dangerous petrochemical tankers plying our abundant coast.

Low gas prices (and large gas inventories) mean that the economics of LNG make no sense. The only way to justify the massive infrastructure and transportation costs of super-cooling gas and shipping it around the world is the profit obtained by buying gas cheap in one place and selling it for a premium in another.

Traditionally, North America has had high gas prices; while lower-priced gas was stranded on other continents without pipeline networks linking them to large markets. In this kind of environment LNG is a way to exploit the price difference and supply the growing demand. But low gas prices torpedo the profit in LNG, and so projects around North America are being mothballed.

WestPac’s Texada island project already appears to be dead and Kitimat LNG’s proposal to export gas is facing formidable challenges:

  • The economic rationale for Kitimat LNG has always been suspect. Their current proposal to export LNG has no better chance of being built then the two previous abandoned proposals: (1) to import LNG and then (2) to import LNG AND convert it into electricity for export in an adjacent gas-fired power plant. These two abandoned iterations couldn’t get financing; and in this economic climate the latest proposal is unlikely to either.
  • Significant questions remain about the validity of the Environmental Assessment approvals Kitimat LNG received for its original proposal, due to the major change in the project from an import facility to an export facility. Litigation is possible.
  • There is not sufficient unallocated natural gas in BC to support an LNG export terminal. Kitimat LNG now plans to export 5 million metric tonnes of LNG per year. This amounts to 24% of British Columbia’s existing natural gas production. However, virtually all of the natural gas BC produces is already purchased by customers in the United States and Alberta. As a result, there is not sufficient unallocated gas in BC to make the proposed terminal viable as an export facility. Perhaps in the future (if new shale gas projects in northeastern BC move forward) there may be sufficient gas for export, but at the moment there isn’t enough gas for the project.
  • The recent election for Haisla First Nations leadership brought in a new Chief and council much less sympathetic to the oil and gas industry and more concerned about the impacts to the air, land and water in their territory. This is not good news for Kitimat LNG (or Enbridge’s Northern Gateway pipeline tanker project for that matter).

Although the threat of new LNG facilities has lessened as natural gas prices drop, British Columbians need to remain on guard. There are strategic reasons U.S. interests want LNG facilities, on the west coast, to be located in Canada or Mexico. Despite enormous subsidies and political promises, Alaska has been unable to move forward with a gas pipeline to ship their stranded gas to southern markets. At some point LNG will become an attractive alternative at which point coastal communities and First Nations should become very very worried.

Under U.S. law LNG tankers shipping gas from Alaska (one U.S. port) to another U.S. port would need to be registered in the U.S. and compliant with U.S. shipping requirements. This would be very expensive. Shipping to a new LNG terminals in BC or Mexico wouldn’t trigger this requirement.

This means that British Columbians must remain vigilant. In preparation for inevitable future LNG proposals that BC will face once prices rise, or demand increases above supply, Dogwood Initiative has published a Citizen’s Guide to LNG. Thank you to the Law Foundation of BC and the University of Victoria’s Environmental Law Clinic for their support on this project.

Check it out and start organizing. Although communities and First Nations have been winning the first few battles, LNG projects in BC remain a mid to long-term threat.