Is The Canadian LNG Export Dream Dead?

Lower oil prices have killed off major plans for liquefied natural gas exports from Canada’s west coast.
On December 2 the state-owned oil company of Malaysia, Petronas, decided to shelve plans to build an enormous LNG export terminal in British Columbia, citing the falling price of oil. It is common for LNG contracts to be priced using a formula linked to the price of crude oil, so declining oil prices pushes down prices for LNG.
Petronas’ Pacific NorthWest LNG, as it was known, was a proposed $32 billion export terminal that would send LNG to Asia. The decision highlights how competitive global LNG trade has become, despite growing demand. Greenfield projects, such as Pacific Northwest LNG, face steep startup costs that become prohibitive when oil prices fall.
Although low oil prices may have been the icing on the cake, Canadian LNG projects were facing serious obstacles before oil prices plummeted. There is stiff competition from a slew of LNG projects already under construction in the U. S. and Australia, which will come online much earlier than anything from British Columbia.
Several LNG export facilities in the U. S. are not starting from scratch, for example. The Sabine Pass terminal on the Gulf Coast and the Cove Point facility on the Chesapeake Bay were both originally constructed to import LNG rather than export. The original facilities were put on ice when the U. S. no longer needed LNG imports. Now, companies are retrofitting them to handle exports – a much cheaper process than building a new facility.

This post was published at Zero Hedge on 12/08/2014.