Natural Gas Export Terminal Projects in Canada: Slowdown? What slowdown?

Business investment slowdown? Not for Natural Gas Export Terminal Projects in Canada!
November 2, 2012

Natural gas differs from the vast majority of other basic commodities in North America in that prices have actually gone down for the past ten years. So why do natural-gas export projects seem to keep on blooming in Canada, especially given the disappointing economic prospects worldwide? There are actually eight LNG (Liquefied Natural Gas) projects of various sizes and at different stages of completion along Canada’s Pacific coast and one major project on its Atlantic coast. Given the cost of these projects—between $5 billion and $12 billion for the largest ones—the question is worth asking.

Three main factors are in play:

  • Shale-gas technology (particularly in the US) has contributed to an oversupply of natural gas in North America, and prices are expected to remain low at least over the medium term. Even though Canada’s production of shale-gas is still limited, its natural gas, produced using conventional means, is hungry for buyers.
  • Prices in Asia and Europe are quite high relative to those in North America (ratio of 5:1 or more), helping to justify multi-billion dollar capital investments in order to serve export markets overseas.
  • The race for Asian natural-gas markets is on and countries such as the US and Australia continue to move aggressively with major projects of their own (e.g. Cheniere Energy in Louisiana).

The sobering economic situation worldwide and the general levelling of commodity prices in other industries are likely to slow down investment projects in Canada, in other industries. This is certainly not the case for the top LNG projects, nor for projects based on the availability of low-cost gas (e.g. the recently announced $1.4 billion nitrogen fertilizer project in Becancour, Quebec).

Keep in mind, however, that operational LNG terminals generate few direct jobs (50-100 per terminal) and consume resources—such as electric power and port facilities—that may be in short supply for other industries. All in all, the net long-term effect of LNG terminals on local economies could be less than expected.

For now, the boom is certainly welcome and should help stabilize Canada’s overall level of business spending in coming months, offsetting the delays in other industries.



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