Net Exports 2017
Canada: 0 MTPA
ASEAN: 48.6 MTPA
While Canada has a robust location advantage when it comes to serving the North Asia LNG market, it will enter the market as a lightweight, competing with incumbent heavyweights, Australia, Qatar and eventually the United States. To compete, its value proposition must maintain competitive pricing and keep its head on a swivel for other competitors within its weight class.
ASEAN, with its growing energy demand could be viewed as a potential customer, but its abundance of natural gas and historic LNG production may see it emerge as a dark horse competitor for Canada in North Asia. ASEAN’s energy needs are complex and to understand the collective impact on Canada we need to look at both regasification and liquification.
Below is a map of all facilities within ASEAN and their capacities:
Source: 2018 LNG Report, 27th World Gas Conference Edition, IGU
In total ASEAN (including PNG) has total regasification capacity of ~40 MTPA and liquification capacity of ~70 MTPA. That is easy math, even if the countries only imported from each other we are left with an excess that is greater than LNG Canada’s capacity. Liquification capability is restricted to four countries, Indonesia, Malaysia, Brunei and PNG and here is where their exports are headed;
Although there is some regional trade, the majority of the volumes are going to North Asia, as you would expect. As Canada enters the market, it is important to note that the PNGLNG volumes were able to find their way to China, Japan and Taiwan. This underpins the value of supply diversification for China Japan and South Korea.
Finally, another factor that comes into play is the ownership of the LNG facilities. With the exception of Bontang, all ASEAN liquification facilities have partial ownership by a Japanese firm, essentially guaranteeing the volumes will find a home if needed. LNG Canada can compete in this regard as its partners represent China (PetroChina), Japan (Mitsubishi), South Korea (KOGAS) and Malaysia (Petronas). Partnerships or joint ventures with the downstream sector will be critical to ensure LNG can find a home as the market becomes more competitive. If one notices the North Asian LNG international ownership in new projects absent, it may be a signal the market is becoming oversupplied.
The planned liquification capacity on Canada’s west coast is far greater than the capacity of the announced ASEAN projects. However, given the slow pace of development in Canada this is arguably meaningless and the emergence of Floating LNG will have a positive impact on ASEAN which has numerous ‘stranded’ offshore gas discoveries that could be monetized. This new technology has the ability to disrupt the regional LNG trade market once commercially viable.
A positive indicator for Canada is the potential for additional regasification terminals in the ASEAN region. For example, the Philippines took their first LNG shipment in 2018 and I would expect to see expansion in the near future. As regasification capacity increases, specifically from countries with no liquification capacity, the opportunity for ASEAN to be a Canadian customer increases, especially if incumbent volumes are tied up serving long term contracts to North Asia.
Impact to Canada
Canada promotes its location as a key competitive advantage to other LNG exporters. While this is important, we need to understand that ASEAN is just as close, is an incumbent in the market, and continues to expand its export capacity. Canada will need to execute projects quickly to capture North Asia demand and continue to drive costs down to ensure it stays cost competitive globally. As the LNG markets grows, cost, not location is what will matter most.
Matt Klukas is the CABC’s Energy Advisor and works for the Criterium Group, a management consulting and merchant capital firm focused on delivering creative, custom strategies and capital solutions across multiple industries. Matt is a registered Professional Geophysicist in the province of Alberta and received his MBA from the University of Calgary.