Since B.C. began its push more than 10 years ago to develop a liquefied natural gas industry, environmental groups and the BC Green Party have warned that the province could end up with stranded assets in a decarbonizing world weaning itself off of fossil fuels.
That hasn’t deterred energy majors including Royal Dutch Shell from investing billions in B.C. to build new LNG export terminals.
Now, as construction of Phase 1 of the LNG Canada project in Kitimat nears completion and as other LNG proposals queue up, Clean Energy Canada is issuing a renewed warning.
In a report that looks at forecasts for long-term demand for LNG, the clean energy think-tank warns that additional LNG volumes from B.C. may not be needed and, even if there is a demand for more LNG in Asia, B.C. producers may not be able to compete with lower-cost producers elsewhere.
“The demand and supply picture is not looking favourable for B.C. LNG,” said Stefan Pauer, report co-author and manager of technology and economic analysis at Clean Energy Canada.
Because the B.C. government has chosen to electrify the province’s natural gas and LNG sector in order to meet its self-imposed carbon budget, the report warns that British Columbians could end up paying higher electricity bills as they shoulder the burden of new power generation and transmission.
The report urges the provincial government to reconsider the “highest and best use” of its clean electricity.
“While the province’s LNG industry is set to begin exports next year, bringing jobs and opportunities to some B.C. communities, the reality is that in the coming years the world may no longer need B.C.’s LNG,” warns the report, An Uncertain Future.
“And betting the province’s economy on the fossil fuel may instead deliver rising gas and electricity prices for families while worsening climate change by locking out cleaner, cheaper energy sources.”
There are currently two LNG projects being built in B.C. The LNG Canada project in Kitimat is expected to be complete next year, and the smaller Woodfibre LNG project in 撸奶社区is expected to be finished in 2027.
Three other projects are in the queue: The Haisla Nation’s Cedar LNG project, the Nisga’a First Nation’s Ksi Lisims LNG project near Prince Rupert and the FortisBC Tilbury Island LNG plant expansion. Should LNG Canada’s partners make a final investment decision on a second phase, the expansion would be like adding another full-scale LNG plant.
Meanwhile, in the U.S., five major LNG export facilities have been built in the time it has taken Canada to build one. Another large facility is expected to come online next year in the U.S., and nine more of various sizes are awaiting final investment decisions, according to the U.S. Department of Energy.
Clean Energy Canada’s report notes that Japan, South Korea and China are expected to be the biggest markets for B.C. LNG exports. But it notes that demand for LNG in Japan has been falling, partly due to Japan’s reversal on nuclear power.
Japan was, until recently, the world’s largest LNG importer. Japan had been shuttering nuclear power plants in the wake of the 2011 Fukushima disaster, and relied heavily on LNG imports to produce electricity.
Japan has reversed course, however, and is once again turning back to nuclear power. As a result, its imports of LNG have plateaued and can be expected to fall over the long-term, as it looks to generate more power from both nuclear and renewables.
South Korea is also putting more focus on nuclear power and renewable sources of energy. The country plans to increase nuclear power to 35 per cent of total generation, and renewables to 31 per cent (up from 10 per cent in 2021) by 2036, “diminishing the role of LNG in its power mix,” the report states.
It also notes that China—which recently surpassed Japan as the world’s largest importer of LNG—has begun to experience slower-than-expected economic growth.
“If China’s near-term growth were to slow by another percentage point, the country’s LNG imports would decline by more than 20 per cent by the end of the decade, with major implications for global LNG trade,” the report says.
LNG trade forecasts cited in the Clean Energy Canada report are all over the map, depending on the scenario used.
Globally, projections range from declines in LNG trade of up to 75 per cent through 2050, to increases of more than 125 per cent.
For the Asia Pacific, the projections vary from an increase of 130 per cent to a decline of 40 per cent by 2050 compared to today. Much depends on how many countries adopt and meet net-zero climate change policy targets.
It’s in this uncertain market that B.C. LNG producers would be competing with other LNG exporters.
“Global LNG export capacity is anticipated to increase by 43 per cent from today by the end of the decade, just as B.C.’s export projects are planned to come online,” the report notes.
“Oversupply may be even more pronounced in likely export markets for B.C.’s LNG, with key competitors—many of which are able to supply much lower-cost LNG—projected to add around 50 per cent more export capacity by 2030 compared to today.”
A number of industry forecasts are more bullish about future demand for LNG than the Clean Energy Canada report.
Royal Dutch Shell—one of the partners in the LNG Canada project—recently produced an outlook that acknowledged that LNG demand had already peaked in some countries such as Japan, and is set to peak globally by 2040. But before it does, however, Shell forecasts global demand for LNG globally will grow by more than 50 per cent by 2040.
The Gas Exporting Countries Forum (GECF) also recently produced its annual global gas outlook (GGO) that looks out to 2050.
“The findings of the GGO show that natural gas demand will continue to increase until 2050, reaching a level 34 per cent above that of 2022 and constituting 26 per cent of the global energy mix. This increase occurs alongside the remarkable expansion of renewable energy sources, particularly in the power sector, as electrification accelerates.”
It notes that one new demand for natural gas will be hydrogen production.
“Hydrogen generated from natural gas is projected to contribute 43 per cent of total hydrogen generation by 2050,” the GGO predicts.
Ian Archer, associate director of gas, power and climate solutions for S&P Global Commodity Insights, said much of the growth in LNG demand over the next 25 years is in Asia, where B.C. producers would be competing for market share.
“Where we do see growth is in Asia, and very strong growth,” Archer said.
S&P Global forecasts global LNG demand growth of 78 per cent between now and 2050—growth of about three per cent per year. For Asia, it forecasts a tripling of demand by 2050, from the current 17.4 billion cubic feet per day to 56.7 billion cubic feet.
China accounts for the largest growth by sheer volume, but it’s in expanding markets such as India, Indonesia and other smaller Asian countries where the biggest increases are expected.
“All these really small countries, which are marginal gas buyers now, are expected to grow pretty significantly,” Archer said. “In fact, we have it growing by five or six times.”
The growth in demand from smaller countries could increase the demand for LNG from five billion cubic feet to 30 billion cubic feet per day, Archer said.
“Stack up all those little guys, you get to some fairly big numbers, and that’s where we think the market is,” he said.
Even Japan could be a future buyer of B.C. LNG, Archer said, despite the anticipated decline in demand.
“One thing LNG providers like to point out is that Canadian LNG has a lower carbon footprint than most other LNG,” Archer said. “So even in a declining market like Japan, if Japan puts a premium on green LNG, there is a market share that Canada could capture here.
“Despite declining volumes overall, Japan will still need LNG in 2050 and beyond, and Canadian LNG could compete on an environmental basis.”
Other Asian countries may not be so willing to pay a premium, however. Emerging markets are “fairly cost sensitive,” Archer said, so the Clean Energy Canada report may have a point when it warns that B.C. LNG producers may have a hard time competing for market share in some parts of Asia.
“Canadian gas will have to compete on cost,” he said.
One of the things contributing to higher costs in B.C. is government policy that places emissions intensity caps on LNG projects. Meeting these caps will require a high degree of electrification.
Using B.C.’s clean electricity to drive processes that would otherwise be driven by burning natural gas is the B.C. government’s solution for balancing its CleanBC carbon budget while allowing a greenhouse-gas-intensive industry to grow.
B.C. LNG producers will be competing with producers in Australia, Qatar, Malaysia and the Middle East that don’t have to meet similar requirements.
If all LNG projects proposed for B.C. are built and fully electrified, it would require 13 terawatt hours of electricity per year, the report estimates, and another 30 terawatt hours for the upstream. B.C.’s current total electricity generation is around 64 terawatt hours, according to the Canadian Energy Regulator.
“B.C. only has so much electricity and it should be allocated to those industries that are going to be growing in importance in the coming decades,” Pauer said.
“If all six facilities were to be built, they would require 43 terawatt hours of electricity per year. That’s an insane amount. That’s as much as 70 per cent of B.C.’s total, or the equivalent of electricity from more than eight Site C dams.”
If B.C. is unable to build out the new generation that will be needed to meet the electricity demands of the LNG sector, it would be obliged to import it, Clean Energy Canada warns.
“If this electricity is not produced in the province, and LNG proponents are guaranteed the BC Hydro industrial electricity rate, importing one Site C’s worth of electricity would cost the B.C. ratepayer, or potentially taxpayer, approximately $600 million annually,” the report estimates.
“The risk is real that more LNG development will crowd out cleaner industries better poised for growth in the coming decades, and so is the risk of future stranded assets backed by government incentives drawing on taxpayer dollars,” the report concludes.
It makes four recommendations to reduce risks to the B.C. economy:
- Develop an economy-wide industrial strategy that aligns with a net-zero economy, that prioritizes opportunities for clean economic growth and considers the scarcity of resources like electricity supply, government incentives and construction workers;
- Develop specific roadmaps for net-zero aligned industries that lay out the timelines and actions needed to secure the necessary clean energy, labour and infrastructure for these sectors;
- Develop a decision-making framework to prioritize the use of available clean electricity that supports household affordability, underpins energy security and prioritizes industrial investments in alignment with climate targets; and
- Amend the province’s environmental assessment process to require the consideration of emissions from the use of exported LNG (termed scope 3 emissions).
