The province of British Columbia was dealt another blow last week when the consortium behind the proposed Aurora LNG facility announced it would not move forward with the C$28 billion (US$23 billion) project. Nexen Energy – the Canadian subsidiary of China’s CNOOC Ltd – and its partner, Inpex Gas British Columbia, evaluated the project over a four-year period. In a statement posted on its website, Nexen said the consortium had decided that the current macroeconomic environment was not conducive to the development of a large LNG project on Digby Island, near Prince Rupert.
“Our decision was market based and driven by capital discipline,” wrote a Nexen spokesperson, Brittney Price, in an email that was quoted by the Canadian Press. “We require every business investment to meet minimum criteria including sustainable, long-term profitability.”
Although Price did not disclose the amount of money Nexen had invested into the project, she said its cancellation would have some impact on the workforce, albeit a minimal one. Under the proposal, the two-phase development of Aurora would have required support from 300 permanent employees.
This latest development followed another consortium’s decision to withdraw from an LNG venture near Port Edward, BC. Malaysia’s Petronas led a consortium that sought to develop the Pacific NorthWest LNG project, which was anticipated to have a total cost of C$36 billion (US$29 billion). A downturn in market conditions compelled the consortium to scrap the project, which included a planned natural gas export terminal on BC’s northern coast and a pipeline.
A GMP FirstEnergy commodity analyst, Martin King, told the Canadian Press that companies’ decisions to back out of LNG projects were not surprising. A market surplus has triggered a drop in global LNG prices to roughly US$6 per mmBtu (US$165.96 per 1,000 cubic metres). “That was the pipe dream, that everybody was going to capture these big double-digit prices, US$14, US$15, US$18 per mmBtu [US$387.24, US$414.90, US$497.88 per 1,000 cubic metres], maybe US$20 [per mmBtu, or US$553.20 per 1,000 cubic metres] on a spike, and here we are at half that,” King said. He added that US, Australian and Russian projects would probably add 14.6 bcf (413.5 mcm) per day of LNG capacity to existing capacity of just under 50 bcf (1.4 bcm) per day within the next three years.
Despite the previous BC government’s wish to have three LNG facilities operating in the province by 2020, construction work has not started on any. However, around 20 projects have been proposed for the BC coast.
Meanwhile, the Canadian National Energy Board (NEB) issued a report recently, which said that the country had tried to join the global LNG market late. If the industry is going to develop in Canada, the next seven years will be critical, according to the NEB.