One of the consequences of the precipitous fall in oil prices since June 2014 is the stagnation in the efforts of Canada to build a viable liquefied natural gas (LNG) industry. In fact, the fall added an impetus to other factors that are preventing the industry from taking off.

In the past, Canada never bothered with trying to export its energy resources in oil and gas to destinations outside North America. It always sought the nearest market to make its production competitive and easy to access. That market was, rightly so, the US as it was able to absorb whatever Canada exported in oil and gas.

However, as US production in both commodities started increasing sharply, Canada went out to seek alternative destinations for its oil and gas as production was increasing at the same time for both.

There is no doubt about the resources where, at the end of 2013, its oil reserves were quoted at more than 174 billion barrels and its gas reserves at 2 trillion cubic meters. Western Canada (British Columbia and Alberta) sought to transport natural gas from inland to the Pacific coast and to liquefy it there for export to Asian markets where demand is ever increasing.

Many large-scale projects have been announced since 2011 and studies and front-end engineering and design works were carried out to obtain local and federal government approvals. One such is the one fronted by Petronas and its partners and called Pacific Northwest (PNW) LNG, which is to transport 10 billion cubic meters (bcm) a year of gas through a newly built Pacific Trail Pipeline to Kitimat on the coast. The liquefaction facility and the necessary port will be built for export.

But the full construction of the facility “will begin as soon as final investment decision is made” which “will require a stable fiscal framework, greater cost and execution certainty, additional First Nations support and firm LNG sales agreements”.

But the support of the Lax Kw’alaams community, a native tribe, was not forthcoming as they rejected a $1 billion (Dh3.67 billion) offer as compensation for the proposed natural gas project this month. This has attendant consequences to many other projects, whether on pipelines or facilities.

The reason for the rejection is said to be environmental as the major point of contention is over the impact of the project on local fisheries. Petronas is yet to decide whether to pursue the project further and a final decision is expected by the end of June.

Petronas is hesitant due to the high cost of the project at a time when oil and LNG prices are in decline. The Canadian government’s new tax breaks and a positive outcome from the federal environmental assessment might encourage the company to go ahead.

Strike a balance

There are proposals for 17 LNG projects and six pipelines in the works in northern British Columbia alone, and even in other parts of Canada. The conflict with indigenous and environmental communities over hydrocarbon projects is evident and is not going to be resolved easily as it is always delicate to strike a balance between economic interests and social and environmental concerns.

But the impact of Canada’s slow decision-making process is compounded with much faster projects similar in scale in the US, where previously planned projects to import LNG have now been converted for exports.

The energy economist Kenneth Medlock of the Baker Institute for Energy said recently that Canada has missed the ship to export gas to Asia when he said, “We don’t see any LNG exports from Canada until almost 2040.” His reasons are that US projects are faster and less costly as they will utilise the conversion of the previously intended import terminals.

He also said: “The [Asian] market is just not going to be substantial enough to absorb it all in a very short period of time.”

Shell, which is also involved in more than one project to export Canadian LNG, expects only a fraction of LNG export projects already approved by the Canadian government to go ahead in the next decade. About 110 million tonnes of government-approved export capacity await final investment decisions.

According to some forecasts, LNG demand could increase from 240 million tonnes a year (mta) in 2013 to 500 mta by 2030.

But global LNG capacity could possibly reach 800 mta by then. With the price of LNG tied to the price of crude oil in the Asian market, investors may be reluctant to go ahead with many projects until oil prices recover to a better level.

While Canada may hesitate for many reasons, gas producing countries in our region may have to be more prudent. They are well advised to look at the possibility of trading gas regionally rather than internationally.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.