B.C. LNG prospects continue to fade A recent U.S. decision denying approval for an Oregon LNG project cited lack of potential market for product

VICTORIA — As Premier Christy Clark marks her fifth year in office, U.S. regulators have served up some discouraging news about the current prospects for selling North American liquefied natural gas in Asian markets.

The latest setback happened Friday when the U.S. Federal Energy Regulatory Commission (FERC) turned thumbs down to an estimated $9.5 billion LNG project in Oregon for lack of evidence of any overseas market for the stuff.

“A decision that stunned supporters and critics alike,” as the Portland-based Oregonian newspaper reported in a story by Ted Sickinger.

Still the 21-page rationale posted at ferc.gov, the commission website, provided a good understanding of why the regulator balked at the proposed Jordan Cove terminal and accompanying pipeline.

Four times commission staff requested details from the would-be developers — including Calgary-based Veresen Inc. — about potential buyers for the estimated annual output of six million tonnes of LNG.

Nor did the would-be developers take the strong hint from the commission and tentatively sound out potential buyers via the informal process known as an “open season.”

At the same time, the commission was fielding major objections to the project from environmentalists, community groups and owners of property along the 370-kilometre route of the pipeline for transporting gas from an existing line in central Oregon to the terminal site near Coos Bay on the coast.

There were more than 600 such private owners and the developers had only obtained rights of way from about five per cent.

But as the commission recognized in its decision, if it were to grant approval to the project, it would clear the way for the builders to invoke the principle of eminent domain and expropriate the necessary rights of way for construction of the pipeline.

As a general rule, the commission will only grant approval to a project if it can be shown that the public benefits outweigh the adverse effects on landowners and the like.

But in the absence of any evidence of a market for the product, the commission could not point to any obvious benefit.

Hence the denial of a certificate for construction and operation of the pipeline and a corresponding finding (because of the absence of the necessary supply of natural gas) that “it will be impossible for the Jordan Cove liquefaction facility to function.”

Which is not necessarily the last word on the prospects for producing LNG on the Oregon coast.

The Jordan Cove developers can appeal the decision, or rework the proposal and reapply. Plus there’s at least one other LNG terminal project in the works for a site near the mouth of the Columbia River.

Still Jordan Cove’s failure to line up buyers in the face of strong indications that those would be needed to secure regulatory approval tends to reinforce suspicions about the limited market for exporting LNG from North American these days.

The Wall Street Journal noted as much last month when Cheniere Energy began shipping LNG from the first of two major export terminals on the U.S. Gulf Coast.

“The world’s appetite for North American LNG will be limited to about 6.5 billion cubic feet a day in the next eight years,” the newspaper reported, citing analyses by the U.S. department of energy and Canada’s own CIBC bank.

“Cheniere has regulatory approval for nearly all of that volume, 6.3 billion cubic feet, from a pair of export terminals. That suggests trouble for dozens of other LNG projects, from Maryland to Oregon,” the paper continued.

It also suggests potential trouble for projects on this side of the border, because the Americans — thanks to Cheniere’s first terminal in Louisiana and the second one under construction in Texas — have got the product to market ahead of us.

Oregon produces virtually no natural gas of its own; consequently, the Jordan Cove project would have drawn on production from elsewhere in the U.S. (mainly Wyoming) as well as natural gas supplies carried on existing pipelines from B.C. and Alberta.

While the Jordan Cove project came with a sizable price tag just short of $10 billion (in Canadian dollars), it would nevertheless have been dwarfed by some of the projects proposed for sites in British Columbia.

The proposal put forward by Malaysia-government owned Petronas for a site near Port Edward on the Northwest Coast of B.C. is priced at $36 billion including terminal, port and pipeline. At peak, Pacific NorthWest LNG would produce up to three times as much product as Jordan Cove would have done.

Granted some B.C.-based proponents have done a better job lining up potential buyers. But the environmental and regulatory obstacles are no less onerous on this side of the border and our equivalent of the landholder issue — aboriginal title — has been a greater cause for delay.

All of which tends to suggest that B.C. is still a long way from delivering homegrown LNG to world markets.

In her first year as premier back in 2011, Premier Clark suggested that the first terminal would be operational by now. But even if she manages to secure re-election next year, she’s more likely to be in her 10th year in office before the first LNG shipment is at hand.

[photo - A liquefied natural gas tanker is loaded at the Cheniere terminal in Cameron Parish, La., where a new LNG terminal is expected to supply most of the North American export capacity for the next eight years.Photograph by: MICHAEL STRAVATO , NYT]