British Columbia’s planned liquefied natural gas (LNG) projects will be outcompeted on price, making them even more vulnerable as global markets muscle out fossil fuels, warns a new report.
Recent analysis by Carbon Tracker frames the province’s nascent liquefied natural gas (LNG) industry as “a case study in the transition risks inherent in LNG investments.”
“LNG terminals are massive, capital-intensive infrastructure projects with long payback periods and even longer lifespans,” writes the financial think tank. “While the oil and gas industry may attest that LNG is a transition-proof fuel, the reality is that such investments, like all fossil fuels investments, are increasingly exposed to significant transition risks as energy systems develop, and risk becoming financially stranded.”
In this shifting market, five LNG export projects are expected to come online in B.C. over the next decade. Two are fully sanctioned, while the others await regulatory approval or remain in the proposal stage.
But when these pricey projects eventually launch, they could struggle to compete against lower-cost producers like Qatar and Mozambique. Carbon Tracker finds that unsanctioned LNG projects in B.C. have a unit cost approximately 26% above the global average. Projected costs are high enough that three of B.C.’s proposed projects—Cedar LNG, LNG Canada Phase 2, and Tilbury LNG Phase 2—may not be competitive, even if demand were to remain high enough to support elevated LNG prices.
The feasibility of investing in LNG exports relies on the ability to sell it to countries in Asia. But price volatility has made LNG less attractive to some importing nations like those in Southeast Asia, potentially undercutting the anticipated market for B.C.’s LNG. The Institute for Energy Economics and Financial Analysis recently highlighted how international conflicts have increased this price volatility, with extreme month-to-month price fluctuations of up to 29% even when other commodities are unaffected.
By decade’s end, the LNG market is expected to be oversupplied, with a surge in new production coming online. And by then, global gas demand will likely plateau and begin to fall, according to the International Energy Agency (IEA). Even fossil fuel giants like BP and Shell have recently scaled back their LNG demand forecasts, and Carbon Tracker cautions that B.C.’s planned LNG projects risk generating “lower than expected returns” across all three of the IEA’s demand scenarios—fast, moderate, and slow energy transitions.
“Policy-makers in B.C. should be aware that long-term fiscal revenue streams from LNG are far from guaranteed,” Carbon Tracker writes. “Large-scale investment in LNG carries an opportunity cost versus investing in a clean energy system which would generate long-economic growth as the energy transition accelerates.”
