Expect delay on Pacific NorthWest LNG as energy demand slumps: IEA

The International Energy Agency (IEA) is expecting further delay of Pacific NorthWest LNG—one of several bleak pieces of news in the agency’s latest forecast of the natural gas market.

The agency’s 2016 Medium-Term Market Report, released earlier this month, finds that low natural gas prices have failed to push demand upward, and flags declining demand in China, Japan and Korea as “headwinds” for the industry going forward. 

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“Slower primary energy demand growth and the decline in the energy intensity of the world economy are lessening demand growth for all fossil fuels, including gas,” the report states.

An energy “transformation” in China, coupled with “subdued” economic growth in advanced economies “are creating headwinds against energy demand in general,” the agency found. “Low fossil fuel prices have so far failed to compensate for them.”

The report is a sobering one for B.C.’s nascent liquefied natural gas industry, which has yet to see a positive final investment decision on any of the 20 proposed projects on the province’s coast.

In the four years prior to 2015, 35 billion cubic metres of LNG capacity was brought online, the IEA notes. That investment saw a “marked” slowdown as the market became over supplied in 2015.

That’s bad news for Petronas-led Pacific NorthWest LNG, which looks unlikely to take a final investment decision (FID) any time soon, the agency says. The project has also faced additional scrutiny in federal environmental permitting, with a federal decision not expected until September.

“Many other planned projects, originally intended to take FID in 2015, were pushed back amid falling prices and deteriorating market conditions,” the report states. “Pacific NorthWest LNG in Canada announced a conditional FID in mid-2015. However, FID has not been taken at the time of writing and the project seems likely to be delayed.”

There’s also grim news for Canadian producers in the United States, Canada’s largest market for gas. LNG is increasingly seen as a means of shoring up B.C.’s natural gas industry at a time when U.S. producers are setting production records. 

“With gas prices unlikely to fall much further from the very low level of 2015–and thus largely exhausting coal-to-gas switching potential–increases in gas-fired generation from 2015 levels will be limited to the need to replace some of the coal capacity that retires,” the report states. 

“As a result, the IEA expects U.S. gas-fired generation to stagnate, with risks skewed to the downside.”


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