Australian-based Woodside Petroleum is pulling out of the proposed C$30 billion Kitimat LNG project in a move that puts the export megaproject in jeopardy, leaving British Columbia with only two LNG projects still under development where seven years ago there were as many as 20 on the drawing board.
Woodside announced May 18 it was exiting its 50 percent interest in LNG Kitimat and the 293-mile Pacific Trail Pipeline, but is retaining its position in the Liard Basin upstream natural gas resources.
The announcement comes two months after Chevron Canada said it was halting its funding for feasibility work on the Kitimat LNG project. Chevron—which owns 50 percent of the project—had put its shares up for sale in December 2019, but no buyers have come forward.
"Following Chevron's decision to exit Kitimat LNG and subsequent decision in March 2021 to cease funding further feasibility work, Woodside undertook a comprehensive review of our options for the project and our wider development portfolio," said acting CEO Meg O'Neill in a company press release from Perth.
"The Kitimat LNG proposal was designed to develop a new source of LNG to supply Asian markets in the latter part of this decade," she added. "However, we have decided to prioritize the allocation of capital to opportunities that will deliver nearer-term shareholder value," including focusing on higher-value opportunities in Australia and Senegal.
"Retaining an upstream position in the prolific Liard Basin provides Woodside a low-cost option to investigate potential future natural gas, ammonia and hydrogen opportunities in British Columbia," O'Neill also said.
Vancouver-based energy lawyer David Austin told Clearing Upthat he's not surprised plans to establish a new provincial LNG export sector out of northeast B.C.'s vast natural gas supplies have now shrunk significantly.
For example, he said, when former Premier Christy Clark and her Liberal government were in power nearly a decade ago, there were as many as 20 LNG projects in the planning stages, although some were more realistic than others.
"The optimism seen during the Christy Clark years was an illusion," Austin said. "There's no possible way that many projects could be physically supported because there are only so many routes and valleys you can put pipelines through from B.C. and Alberta gas fields to tidewater."
However, global LNG markets—particularly those in Asia—are a far larger problem now that there's a growing reluctance from buyers to commit to long-term LNG contracts, Austin said, and suggested one aspect of this problem is the current COVID-19 pandemic which is making many businesses all over the world reluctant to make major financial decisions.
But from a longer-term point of view, Austin says, LNG is facing stiff competition from renewables--particularly in Asia--in markets where it's used to generate electricity. This is because prices for solar and wind have fallen by 80-90 percent in the last decade, he noted.
"Prices for bigger and better batteries are also declining and that adds to the competition for LNG," Austin said.
If Kitimat LNG does not survive the loss of its two major partners, that will leave only two LNG projects in B.C. with current potential for completion.
One of them, the C$40 billion LNG Canada project, is already under construction.
It's also located at tidewater near Kitimat and its first phase is now about one-third complete. The price tag includes a 415-mile pipeline from northeastern B.C. gas fields to tidewater.
LNG Canada is owned by a five-member consortium led by Royal Dutch Shell PLC (40 percent) and includes Malaysia's Petronas (25 percent), Petrochina (15 percent), Mitsubishi of Japan (15 percent) and Korea Gas of South Korea (5 percent). The project is estimated to produce 3.5 Bcf per day of LNG when it goes into operation.
However, even though LNG Canada's first phase, including its C$18 billion terminal, is well underway, Austin says the final investment decision on phase two, which greatly expands the project, is not expected to be made until next fall.
"The big question is whether or not LNG Canada decides to go ahead with Phase Two," he added. "That depends on whether or not LNG Canada can line up the necessary long-term buyers, so it's not a done deal just yet."
But LNG Canada CEO Peter Zebedee recently issued a public statement assuring "British Columbians and Canadians that LNG Canada is continuing to hit critical construction milestones and is on track to deliver first cargo before the middle of this decade."
The other remaining LNG project in the province is the C$1.8 billion Woodfibre plant, located on the site of a former pulp plant at Woodfibre near Squamish at the halfway point between Vancouver and the Whistler Mountain ski resort. The project would produce 0.3 Bcfd and has signed off-take contracts for 70 percent of annual productions.
Nor is the outlook certain for the proposed $8 billion Jordan Cove LNG plant planned for Coos Bay, Ore., and its 229-mile accompanying pipeline. The project has been designed to produce about 7.5 million metric tons per year, or about 1.0 Bcfd, of LNG for export into Asian markets.
But earlier this year the project developer, Pembina, wrote down Jordan Cove's assets and said at the time it could no longer predict if the project would move forward.
In late April, Pembina also paused development of Jordan Cove, saying it was assessing the impact of recent regulatory decisions involving denial of permits.
It asked the U.S. Court of Appeals for the D.C. Circuit to place proceedings in abeyance pending the outcome of its reassessment of the project (CU No. 2002 ).