Officials responsible for energy security in Japan and South Korea are eagerly awaiting the first imports of Western Canadian natural gas from the LNG 乌鸦传媒 plant in Kitimat a couple of years from now.
“If everything goes well, by the end by the end of 2024, the first shipment of LNG will be will be sent to Japan,” Yamanouchi Kanji, Japan’s ambassador to 乌鸦传媒, said Tuesday in a webinar with Japanese and Korean ambassadors and energy officials sponsored by the 乌鸦传媒 West Foundation.
“That will be a game changer.”
But as to the central theme of the webinar -- Can 乌鸦传媒 provide clean, secure energy to meet demand in Japan and Korea? – the answer was not at all clear.
Officials for Japan and South Korea made it clear there is a demand for LNG in both countries and that they viewed 乌鸦传媒 a potential energy ally and reliable trade partner. But it’s unclear whether any more large LNG projects will ever be built in 乌鸦传媒, beyond the one that’s under construction.
Kenryo Mizutani, deputy director and legal counsel for the Japan Organization for Metals and Energy Security (JOGMEC), noted that Japan’s energy sufficiency ratio is just 12 per cent; 乌鸦传媒’s is 180 per cent. In other words, 乌鸦传媒 has more energy than it can ever use.
It was also pointed out that the 15 billion cubic feet per day (bcf/d) of natural gas that Korea and Japan consume in the form of LNG is close to 乌鸦传媒’s total natural gas production (17 to 18 bfc/d).
“The market potential in Korea and Japan is just tremendous,” said Dulles Wang, director, Americas Gas and LNG Research, at Wood Mackenzie.
But a decade of failure on the LNG development front in 乌鸦传媒 appears to have left potential customers questioning 乌鸦传媒’s apparent reluctance or inability to fully exploit its potential as a major exporter of natural gas.
Out of more than a dozen LNG proposals in the queue in 乌鸦传媒 a few years ago, all but one – LNG 乌鸦传媒 -- were abandoned.
Moderator Marla Orenstein, director of Natural Resources for the 乌鸦传媒 West Foundation, asked panelists if 乌鸦传媒 is viewed as a reliable LNG supplier, “given our stalls so far.”
“I would describe it as hesitant – cautiously optimistic,” answered Karl Pires, partner at Shearman and Sterling LLP and governor of the Canadian Chamber of Commerce in Japan.
“I think they view 乌鸦传媒, from a geopolitical perspective and from a security perspective, as an ideal partner. It would be great if they could work more with 乌鸦传媒, but I think they’re very hesitant just because of the experience with LNG…in terms of the pace and the progress, and the various obstacles they ran into.”
Pires cited regulatory uncertainty and aboriginal relations and consultation in 乌鸦传媒 among the perceived “obstacles” to LNG development.
“There’s a lot of built-in obstacles that make it more difficult than some of the other regions – Australia, Malaysia, Brunei, Qatar and even the U.S.,” he said.
Asked what signals Japan and Korea need to see from 乌鸦传媒 to assure them 乌鸦传媒 can be a reliable energy partner, Mizutani said regulatory uncertainty could be addressed. He also cited “an increased signal of federal and provincial cooperation, as well as inter-provincial cooperation, and I think that’s one of the signals that we’re waiting for.”
There also seems to be some question whether Ottawa’s support for an LNG industry has waned.
While Prime Minister Justin Trudeau lauded the $40 billion investment the LNG 乌鸦传媒 partners announced in 2018, more recently his response to Japan’s overtures to secure more Canadian energy, including natural gas, appeared to many to be less than enthusiastic.
“Like many, I was disappointed to see little or no commitment at a federal level to increasing efforts to supply LNG to our reliable allies in Asia, particularly in these uncertain times,” said Patrick Maguire, vice chairman and Calgary managing partner for Bennett Jones, a sponsor of the webinar.
But there may also be some uncertainty on the other side of the trade equation as well that might lead investors to question the long-term prospects for the demand for LNG in Japan and Korea.
Japan, Korea and Taiwan currently account for about 40 per cent of the global LNG trade, according to the Institute for Energy Economics and Financial Analysis (IEEFA).
In response to a global energy crisis and rising LNG costs, both Japan and South Korea have reversed their positions on nuclear power. Both countries have been switching both nuclear and coal power plants back on. Both also have plans to increase the development of renewable energy in the coming decades, all of which raises questions about the long-term demand for LNG for generating power.
“The high price LNG environment in 2022 has spurred a renewed focus on nuclear power in Japan and South Korea,” the IEEFA notes. “A gradual restart of Japan’s nuclear fleet and a reversal of anti-nuclear policies in South Korea are likely to significantly reduce power sector LNG demand.”
Investors need some assurances of long-term demand to make investments in new LNG plants and natural gas pipelines. They may balk at sinking billions into a new LNG plant with a 40-year export licence if there is a chance the demand for LNG in a given market might start drying up half-way through the export licence period.
Dulles Wang, director for the Americas Gas and LNG Research at Wood Mackenzie, said both Korea and Japan are concerned about energy security and want to diversify their energy sources with reliable suppliers.
He noted that 20 to 25 per cent of the long-term contracts in Japan and Korea are expiring in the next five to 10 years. He suggested Canadian LNG suppliers could win away some of those contracts from other suppliers.
“We’re talking about opportunities -- not just in the sense of displacing coal, or in terms of the energy transition -- but also in just renewing or securing enough to meet current demand,” Wang said. “The market potential in Korea and Japan is just tremendous.”
The question is how long that potential demand will last, and whether 乌鸦传媒 can compete with other suppliers, notably the U.S.
It was acknowledged the U.S. has certain advantages over 乌鸦传媒 for LNG development. For one, it’s simply more expensive to build pipelines and LNG plants in 乌鸦传媒 than the U.S.
On the other hand, Canadian natural gas is a bit cheaper than American natural gas, and the shipping distances from 乌鸦传媒 to Asia are much shorter. Ultimately, Wang said the delivered cost of Canadian and American LNG are “comparable.”
Pires said Japan is focused heavily on offshore wind and geothermal energy, and is aiming to have renewable energy eventually account for 36 to 38 per cent of its energy needs. But there would still be a demand for firm base load power, which is something natural gas fired power plants can provide, with lower emissions than coal power.
“For the most part, a lot of the renewables are not seen as reliable in terms of base load power,” he said. “We don’t see LNG really being reduced much.”
As for Korea, renewables currently account for only seven per cent of Korea’s energy mix, said Won Cho, energy project developer for Korea Gas Corporation, one of the five partners in the LNG 乌鸦传媒 project. Coal accounts for 35 per cent, nuclear power 25 per cent and LNG 27 per cent.
“Altogether, it just doesn’t make sense right now to focus only on renewables,” Cho said. “Some people say LNG will push out the renewable investment. All I would have to say is it’s pushing out more on the coal.”
One advantage Canadian LNG may have over other exporters is its relative low emissions intensity. Asked if he thought the fact Western Canadian LNG would have some of the lowest emissions intensities in the world actually matters to buyers, Cho said it does.
“I’ve been talking to a lot of potential buyers who are interested in (Canadian) LNG specifically,” he said. “Because it’s a low carbon intensity, it’s bringing a lot of attention and appetite in the market.”
It’s expected that the LNG 乌鸦传媒 plant under construction in Kitimat will be producing LNG by the end of 2024. Early pre-construction work has also begun on the smaller Woodfibre LNG plant in Squamish.
One other small project – the Haisla First Nation’s Cedar LNG project – concluded a BC Environmental Assessment review process in mid-November.
Provincial and federal environment ministers ostensibly have 45 days to make a decision. It’s now been three months since the Cedar LNG completed the EAO process, with no decision yet from either the provincial or federal environment ministers.
