Unlocking Canadian LNG: Mark Fitzgerald on Bringing Montney Gas to the World
This week, our guest is Mark Fitzgerald, President and CEO of PETRONAS Canada, which owns a 25% stake in LNG Canada. LNG Canada will be Canada’s first major LNG export terminal and is expected to start shipping Canadian natural gas to global markets from Kitimat, British Columbia, later this year. PETRONAS is one of the largest LNG operators in the world and has a key position in the Montney, Canada’s leading and world-class shale gas play.
Here are some of the questions Jackie and Peter asked Mark: What is the economic impact of LNG Canada Phase 1? How does the Montney compare to other natural gas plays globally? Can Canadian LNG compete with other global suppliers to Asia? How does the carbon emissions intensity of Canadian LNG compare to other suppliers? How would you describe the risk of investing in a Canadian LNG export terminal, compared with other countries where PETRONAS invests? Investment in Canadian LNG has been less than expected compared to a decade ago; what needs to change for Canada to attract new capital for building LNG export facilities? In your view, did BC Premier David Eby’s announcement to fast-track 18 projects help address any barriers to investment? Does BC still require LNG facilities to be net zero greenhouse gas emissions by 2030, and does any other country require this? Are there any updates on the potential for a final investment decision (FID) on LNG Canada Phase 2?
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Episode 275 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. It is the Monday after the liberal convention. It is the week after another tariff. Yo-yo up and down. So where do you want to start, Jackie, before we introduce our special guest?
Jackie Forrest:
Well, we’ll just quickly talk. I think everyone that listens is aware that Mark Carney won the liberal party leadership race and now we’re just sort of waiting. Apparently he’s not the prime minister yet. He’s the prime minister designate. So I guess there’ll be some sort of official ceremony or something this week.
Peter Tertzakian:
He has to be sworn in. Yeah. He has to be sworn in. Yeah.
Jackie Forrest:
Speculation is we will get an election called soon, at least before returning to Parliament on March 24th. Let’s hope it’s a lot sooner than that, but we’ll wait and see.
Peter Tertzakian:
Yeah, but the actual election is unlikely given it’s typically 45 days at least, probably end of April, potentially early May. Depending upon how Mr. Carney wants to play it. I imagine there’ll be some kind of cabinet shuffle, getting things together, getting things launched, and then away we go. And I agree it’s going to be an election call by all accounts, without waiting for Parliament to come back and wait for some sort of non-confidence vote, which may not happen because the NDP are way down, so I wouldn’t expect them to pull the pin. I’m just looking at this latest 338canada.com poll and we’ll post the website if you haven’t seen it. It’s an aggregation of all the polls, the latest and greatest, and the Liberals have been gaining probably 10 to 15 seats per week.
And I noted as I pulled it up this morning, again, no one party now has majority projections, not even the CPC. So majority requires 172 plus seats. The CPC is at 156 projected. If it were held today, Liberal Party of Canada, 143. Interestingly, the NDP are at 14, which means that the NDP plus any one of the other two could not form a majority or a sort of a coalition minority. It would have to be either CPC or Liberals plus Bloc Québécois or BQ, which is currently tracking 28 seats. It’s going to be a very fluid situation, but certainly Mr. Carney has the momentum. To be honest with you, I think it’s all about the tariffs and the US. That’s almost a truism or an obvious statement because I don’t expect the tariff yo-yo to stop before an election is called.
Jackie Forrest:
Well, and talking about that, just quick summary of where we’re at. It’s getting hard to keep track of everything, but as of last Tuesday, March 4th, we thought we were getting 25% tariff on everything we send to the Americans and 10% on energy. Next day, we learned that products that are registered under USMCA, so they’re like a hundred percent Canadian content and they’re registered will not need to pay a tariff until April 2nd. Well, there’s a lot of confusion now about what applies and what doesn’t, but the White House had estimated that about 37% of the products would then be exempt until April 2nd.
Many of the products we send them were not actually formally registered under USMCA. Now, I think that many products, and this is from reading about it, it seems like many products are a hundred percent Canadian and could be registered. And so people are scrambling now to figure out how to get these products registered so they could avoid the tariffs for a month. So I think that there’s a lot of confusion right now. And then we just learned this morning as we’re recording Monday morning, that potentially for energy, maybe the tariffs will go away in April 2nd. That was coming from Chris Wright, the Secretary of Energy. Anyway, so it’s really hard to know what companies should be planning for right now.
Peter Tertzakian:
No, I know, and I certainly wouldn’t want to be a border agent trying to figure all this out. Well, maybe we should get a border agent on the podcast and find out how they’re coping with it. But energy, you talked about energy, so let’s talk about energy. Let’s talk about infrastructure. Let’s talk about West Coast. Let’s talk about natural gas, LNG and who better to join us than Mark Fitzgerald, president and CEO of PETRONAS Canada. He is with us. Welcome, Mark.
Mark Fitzgerald:
Thank you, Peter. Yeah, very, very good to be here. Thank you for the invite.
Jackie Forrest:
Okay, Mark. Well, we’re happy to have you back in Canada. So maybe tell our guests, you had joined PETRONAS Canada originally, but then you moved to Malaysia and decided you missed our winters, I guess.
Mark Fitzgerald:
That’s exactly what I decided. Yeah. I decided that four seasons are more fun than one season. But yeah, I had the very great pleasure and I would say privilege of leading PETRONAS’s international business, everything outside of Malaysia over the last three years, very significant in scale. We operate in or present in over 25 countries and produce across the spectrum from oil to natural gas across into LNG. And I think for me, what I find most fascinating as a Canadian having had that opportunity to do that is the ability to understand how energy dynamics work all the way around the globe from supply and demand fundamentals across to different regulatory regimes, different political regimes, different perspectives, and compare that back of course to where we are here in Canada, which is a lot of my history.
Peter Tertzakian:
What an interesting perch because Malaysia isn’t the first country that comes to mind when we think about global oil business, but it’s made a conscious effort to create a multinational company. PETRONAS, talk a little bit about that.
Mark Fitzgerald:
Yeah, thanks Peter. And PETRONAS is certainly a company that unless you’re a big F1 fan and you watch the Mercedes team and very, very proud sponsorship of that, it’s a company that you don’t often see. We are amongst the top three or four in the world in terms of global LNG supply, a very big marketer and supplier of LNG, certainly extremely active in Malaysia where we are owned by the government of Malaysia. We’re given the responsibility to ensure national energy security in Malaysia, but PETRONAS is very much focused on behaving like an international oil company.
As a Fortune 500 equivalent company, we started to branch out almost 30 years ago around the globe and have created a couple of different things, supply basins for LNG. We’re very active in LNG in Australia, which I think is an excellent model for Canada. I think we certainly can explore that. Very, very pleased with our position in Canada. We entered Canada 13 years ago. Very, very proud of the upcoming startup of LNG Canada Train 1, and then throughout the Middle East, Africa and other areas. And so a company that I would say is more sophisticated than we sometimes get credit for, but certainly we’re below the radar.
Jackie Forrest:
I went to Kuala Lumpur years ago and I actually visited the PETRONAS Tower and you have a museum in the bottom that explains to people about the energy industry, and I’ve always thought when we had our bow tower and we had that beautiful view floor to get people to learn about our energy industry. So anyway, as a tourist, I thought it was just interesting how that was like a tourist site that people went to. So you touched on a lot of things and we want to talk of course about LNG Canada, but before we leave Asia, just describe a little bit what are your views on energy transition and even China’s role in energy after living over there? Has it changed your perspective on energy demand and the future for change?
Mark Fitzgerald:
Yeah, it’s a great question, Jackie. It has absolutely changed my perspective on energy demand around the globe. I find that when I worked in Canada and I had the privilege to be the CEO of PETRONAS Canada as well for five years before I went overseas, we look at energy demand and supply more than anything in a North American context because we’re so integrated here short of some of the oil exports that come out of the lower 48 or ultimately LNG. But we think of energy demand, I think very much in a North American context, the big population growth centers are not here. We know that. The population growth centers are in Southeast Asia and they’re in East Asia.
And while we would, as a company, absolutely and firmly commit to the importance of energy transition, decarbonization, we’ve committed to Net Zero 2050. The demand requirements for energy around the globe far exceed the ability of any renewable supply that’s not on the basis of fossil fuels. And for us, that’s primarily LNG. And so it comes back to how do you differentiate that product, how do you differentiate the LNG? The demand in China specifically is very significant. We know China will innovate very, very aggressively. We have continued to see movement into renewables and advancement of those technologies in that country. But at the same time, the population growth, the demands of the economy there and the energy growth will require significant imports of energy in the long term.
Jackie Forrest:
Okay. Well, we’re going to talk a bit about the Canadian opportunity and actually lost opportunity and PETRONAS is part of one of those as well. But let’s talk about the positives. The LNG Canada going to start up at Kitimat. Give us an update of the project, but also the economic opportunity that came from this project because I think that’s something that people don’t fully understand. It’s been a huge investment with a huge set of economic benefits to BC and the rest of Canada.
Mark Fitzgerald:
Yeah, thanks, Jackie. We’re really, really proud with our partners to be close to LNG Canada coming on stream. I’d love give everybody a date and announce a date here, but I won’t do that. But certainly it’s an exciting time and the Western Canadian basin needs it. We’ve got low natural gas prices. We need increased offtake. We know that our best customer down south is maybe not necessarily going to be our best customer go forward. LNG Canada is one of the first steps towards a material access to global markets for Canadian resources. Very, very exciting time. What people may not realize is the scope and scale of the economic benefit that transfers to Canada from that. So just a couple of numbers for example. We expect revenues associated with the BC economy to be about 2 billion dollars annually, very significant economic impact into the BC economy. Over the life of that project or the planning cycle that we use, that’s almost 90 billion dollars in cumulative government revenue just to the government of British Columbia by 2064, 90 billion Canadian dollars. That’s the scope of that one development, LNG C1.
Jackie Forrest:
So is that the royalties on producing the gas and then the taxes paid by the profitable entities?
Mark Fitzgerald:
Yeah. And the full cycle, the full value chain.
Peter Tertzakian:
Does that include the personal income taxes and the employees and everything?
Mark Fitzgerald:
It would include everything. So everything that is associated with that project development and the economic benefit to the government of British Columbia with that is very, very significant. We talk a lot about the importance in British Columbia of transferring economic benefit or supporting economic development in the indigenous communities. Those are areas that we are partners in LNG Canada and the majority of the upstream producers are very, very focused on. An example, more than 6 billion dollars in wages and other economic opportunities are available for indigenous communities associated with this development and this project. That is significant in terms of creating opportunity, creating skills, creating employment, creating growth in those communities.
I talk about poverty and the challenges around the world. We have opportunities to have significant impact here. That development, LNG Canada 1, with the upstream will create more than 100,000 jobs potentially annually across British Columbia. Again, associated with the infrastructure, associated with the support networks, associated with the service sector. And so these are the scope and scale of the economic benefit that exists from something like LNG Canada. What I remind everybody of constantly is, and that economic benefit will flow elsewhere in the world because energy demand is growing and it will be supplied from somewhere in the world and there’s no reason that should not flow to Canada given the competitive advantages that we have in this country over the rest of the world.
Jackie Forrest:
So that 100,000, those are the operating jobs, not even accounting for all the construction jobs that have occurred over the last five years.
Mark Fitzgerald:
That’s go forward jobs.
Jackie Forrest:
That’s go forward.
Mark Fitzgerald:
Exactly.
Jackie Forrest:
And as we know, we’ve talked about on the podcast, if we don’t build these LNG export terminals, then the Americans are going to build them or the Qataris are going to build them. In the absence of Canada participating, it doesn’t change the amount of gas that gets supplied.
Mark Fitzgerald:
No, it doesn’t. And I often say to people, especially when I travel around the world, because there’s lots of talk about what’s wrong with Canada? Why are you not developing in Canada? What’s happening in Canada? And I say to people, “We have a lot to be proud of in this country, a lot of opportunity to leverage what we’re good at.” Our rule of law is the envy of many in the world. Our regulatory environment and how we develop and manage the pace of development and how we control development is the envy of many in the world. LNG Canada is the lowest emitting LNG in the world in terms of emissions intensity, the lowest emission intensity LNG in the world. We should not be apologizing for that. We should not be restricting that development because near as I can figure, it is something we all talk about, the CO2 doesn’t stop at our border. And so why do we not leverage our strengths and our expertise? That’s what we’re advocating for.
Peter Tertzakian:
Well, that’s one dimension of competitiveness, but the real dimension of competitiveness is I sort of look at the numbers here, even today’s. So natural gas in the United States, Henry Hub trades for $4.60 US. Here, we’re estimating our average is going to be $2.50 Canadian, which is a 1.80 US. It’s a huge difference. And so we have learned how to extract this commodity, low emissions and low cost. I don’t think we’re as low cost as say the Qataris or other places, but a 1.80 US is pretty darn low and the companies that are extracting it are profitable. So talk about the competitiveness from the perspective of going from gas field in Alberta BC through to Kitimat liquefaction into the Pacific Basin and ultimately sail to Southeast Asia.
Mark Fitzgerald:
Yeah, I think I would start, Peter, by saying I really hope we average 2.50 looking at current market prices.
Jackie Forrest:
By the way, you’re hitting high prices. We’ve had less than a dollar Canadian for I think for the last year.
Mark Fitzgerald:
I know, right?
Peter Tertzakian:
It’s ridiculous.
Mark Fitzgerald:
I looked this morning and I just about fainted and almost missed this podcast, the Montney Basin, which is where we produce from and where a great majority of the gas to LNG Canada will come from, represents about 50% right now of our Canadian natural gas production. It is, without question, competitive against any of the shale or resource development plays in the United States in terms of cost of supply. And the number one advantage that we see is PETRONAS when we look in Canada is with the advancements and the innovation and the creativity that the unconventional space has implemented and enacted or discovered, if you will, over the last 10 years, the cost of supply for us in the Montney is very, very low.
We certainly have the benefit now of the coastal gas link pipeline linking Northeast British Columbia with the coast. Certainly a difficult pipeline to run through the Rocky Mountains and across there, but it’s in. It’s in now and it has significant capacity, unused capacity that is available to bring the tolling cost down in LNG Canada in terms of liquefaction cost is highly competitive. And so when we look at the FOB cost dollar per ton on the West Coast of Canada for LNG Canada, it is competitive. Certainly at the Middle East and the Qataris, that’s just a different level, but where we make up the difference is the transportation cost from the West Coast to the major markets in Eastern Asia is a significant advantage for us in Canada or the West Coast of the US, which ultimately could start to become a competitor for us under the new regime in the US.
Peter Tertzakian:
When LNG Canada won, which you’re a consortium member, opens up, when is it, in May or something. Maybe not something.
Mark Fitzgerald:
You can get in trouble.
Peter Tertzakian:
But let’s just say May, June, is that when that opens up. Do we expect our natural gas prices, our dry natural gas prices to go up?
Mark Fitzgerald:
Yeah, and I would love to say yes, Peter, and I know we all hope it will. For context, we produce, I think current production in Western Canada right now is about 19.5, 19.6 Bcf a day. LNG Canada, once it’s fully operational and fully ramped up, which is going to take a while, we’ll draw 2 Bcf a day off that.
Peter Tertzakian:
Sorry, or do we grow to 21?
Mark Fitzgerald:
Well, and there’s the crux of it because the Montney is so prolific and has the ability to grow so quickly and is such low cost that we really need much, much more than 2 Bcf a day to go off the West Coast because producers will typically respond to any price and any opportunity to make money.
Peter Tertzakian:
Yeah, it’s an interesting dynamic because historically the upstream oil and gas industry drilled wells and natural gas was then put into storage for the winter and it still is. But increasingly, the new drilling technologies and the prolific nature of the Montney is such that actually the reservoir itself becomes storage and it’s just in time delivery.
Mark Fitzgerald:
It very much is. You’re absolutely right. And the marginal cost of that incremental MCF is now so, so low that it becomes almost a self-sustaining challenge for us in Western Canada where any kind of price response results in a production response which brings it back down, which then and it goes back and forth. And I’ve had the pleasure of working in this industry for 35 years and the conventional days that incremental cost to supply that incremental barrel was, it was enough to drive a price response because we didn’t have the scope and scale and you both understand this much better than I do. The scope and scale of the resource now with the Montney and the efficiencies that exist there and continue to evolve some of the new technologies and the new drill technology, it’s fascinating to me to watch that.
Peter Tertzakian:
Well, there’s nothing wrong with being a low-cost producer. In fact, it’s very desirable.
Mark Fitzgerald:
Yeah. Just be to market.
Peter Tertzakian:
And just need to get it to market. And then you capture the higher value prices globally. We avoid tariff mania and it fills the coffers of the treasuries and the 2 billion dollars you talk about just for the BC economy, which I’m sure is most welcome given their recent budget a week or two ago was a 10 billion deficit for three years in a row.
Mark Fitzgerald:
Well, and that’s my point, Peter, is companies can make money at 250 in Canada. As an economy that is a resource-based economy that is facing challenges in terms of, as you highlighted, balancing budgets is seeing the impact of whether it’s tariffs or economic pressures from our neighbor down south needs to generate economic growth and needs to generate revenue in the country, in my opinion, and so we have a world scale resource. We manage it with an expertise that is the envy of the world. We have a carbon footprint and emissions intensity associated with that that is amongst the best in the world and we’re receiving a price for that, what I would call premium product that is amongst the lowest in the world.
And so we simply continue to advocate for a strategy across the country that says the strength in this country is our ability to develop and extract resources efficiently, effectively, the right way. And now we need to take that next step to say our number one market is not our number one market. And the evolution in the unconventional space has created the scale and quality of a resource that we could never have imagined. We could never have imagined.
Jackie Forrest:
Right. Well, and I think a lot of people are waking up to the fact that we need new places to sell our natural resources or all the products that we create. And that brings us to a conversation that Peter and I had last week, which is what do we need to make things differently? How do we get investment back into this country? And for those listeners that aren’t aware, before becoming a partner on LNG Canada, PETRONAS proposed and advanced the Pacific Northwest LNG project for about five years. That would’ve been a $37 billion LNG export terminal off the West Coast of BC. The company spent significant capital progressing this project, but ultimately you withdrew the project.
Based on your experience on, it’s been a long one with that project. And I know you probably don’t even like to think about that project, but now your new project, what do we need to do? And by the way, your international experience where you see what other countries are doing, what do we need to do to bring companies with foreign capital like yours back to this country after the track record that we’ve accumulated over the last 10 years? Which I don’t think could be a selling point when you’re at the board table trying to advocate for a money into Canada. I don’t think our track record’s helpful.
Mark Fitzgerald:
Yeah, it’s a tough conversation. I have had, as I said, the pleasure and the privilege of sitting in multiple board meetings talking about investments in multiple countries and comparing an investment across to say any of those 25 different countries across any commodity with the ability to invest in Canada. The challenge with the perception of investment in Canada is number one, a lack of stability and certainty. So while we consider growing our business, consider the expansion of LNG on the West Coast, it always comes back to are we going to have government support? Are we going to have the ability to get the right permits? Are there going to be expectations or standards or something placed upon us that we’re unaware of or uncertain of? And instead of considering that investment to be relatively low risk due to the nature of a developed economy like Canada, it starts to increase in risk and it starts to become perceived as more uncertain than an investment in this country should be.
And so for us, what we continue to look for is first and foremost, it’s almost as simple or it is as simple as our policy leaders and our leaders at the federal and provincial level simply saying, “We want to do projects like this,” which we’re starting to see an emergence of as a result of what’s happening in the lower 48. As surprising as it sounds, that simple narrative coming from our prime minister or premiers carries a lot of weight when a leader, policy leader says, “We want to do these projects.” The second is a highlighted, that regulatory certainty. The challenge for us with Pacific Northwest LNG is we found that we were consistently faced with changing requirements and changing outcomes on that. And as you’re looking at multiple changes and multiple challenges, the lack of certainty creates risk. Risk creates investment uncertainty. And eventually as the LNG market started to move away from us, that increased uncertainty. Those increased requirements combined with the uncertainty in the markets, made the project too risky for us.
Jackie Forrest:
And just give some examples because I think tangible examples are important. So you started out thinking you had to build the project a certain way, but through the course of this five year review, there were many new requirements put on to avoid environmental impact. I think it was like a suspension bridge that didn’t have any things underneath it, which was really expensive. And so these things can create major change in the cost in the economics of the project. And you don’t even find that out until you’re so far down this road that you have to cancel after five years.
Mark Fitzgerald:
That’s your challenge with it. Yeah. And let me start by saying that any project that we do in Canada, and frankly any project that we do around the world, we’re very, very proud of our environmental record. We’re very, very proud of our commitment to Net Zero and have invested significantly in each of those areas to ensure that when our name is used in any country that we’re in, that it’s used in a positive vein. So that’s first and foremost, and that’s our commitment. I think that’s an important one to ensure your listeners here from me.
The difficulty with doing projects right now in Canada is, Jackie, exactly as you said, because we don’t have a lot of experience with big projects much as I wish we did, especially in the coastal areas. Oftentimes the requirements change as we move through and people look at the project, look at the details, look at the design, look at the impact, or do the assessments and the impacts all the way through that. I think that’s fair. We understand that process. That process is important because as I said, we want to ensure that there is a recognition of our commitment as an organization, same as LNG Canada’s commitment to what’s correct in terms of meeting those expectations. But they can’t keep changing. They can’t keep changing every time somebody comes in and looks at it or there’s a new department or something that comes in because…
Peter Tertzakian:
Yeah, this is the whole goalpost, don’t shift the goalposts type of argument.
Mark Fitzgerald:
Don’t shift the goalpost.
Peter Tertzakian:
And so you talked a lot about the need for stability and some sense of certainty on the goalposts and other things relating to policy and regulatory. A decision as a decision is super important. And I would add that it’s not that you’re ever going to get any sense of a hundred percent certainty, but it’s that we need more certainty than the next available opportunity for PETRONAS globally. In other words, we compete with other countries for the whatever multi-billion dollars that you’re going to put into say, the next LNG project. And if we are not more stable and more attractive than somewhere else, we’re not going to get the money.
Mark Fitzgerald:
We won’t get the money. And this is going to be a little controversial, but I respect and appreciate Canada’s efforts to lead in the environmental space and the de-carbonization space. I absolutely. And I believe in that. I think it’s important to do that. Canada cannot make a difference globally in our own country by itself. We can lead in terms of example, we can lead in terms of our policy, but the world is not following that. The world has a different perspective in terms of energy supply.
Peter Tertzakian:
I’m going to talk a little bit about that because there’s that dimension and that argument. But to me, the argument is, like you’ve said earlier on in the podcast, we are the best in the world, the lowest carbon for the LNG because it’s hydro-powered, so on and so forth. Yet it never seems to be good enough. And if you look at the legacy carbon policies that the next prime minister has to deal with, and even the current, say EB government and BC, we’ve talked about it on this podcast many times. It’s just such a complex and dense web of unintelligible carbon policies and markets. That is one of the reasons why the capital goes to other countries. So my question really is what do you think needs to be done with our legacy carbon policies given that we are already one of the best in the world?
Mark Fitzgerald:
Yeah, I always encourage our policymakers to recognize that Canada has the opportunity to punch way above its weight class in terms of global impact on emissions reduction. And so we should be encouraging investment in Canadian resources. We should be encouraging investment in offtake and LNG and moving it to the world markets because we can have a disproportionate impact on the world markets. The carbon tax is a material component of our cost structure in Canada. We don’t have that anywhere else in the world. And so it creates economic challenges for us. I understand and appreciate the basis behind it, but it does not help investment in Canada. It does not help investment in Canada.
Peter Tertzakian:
That’s the industrial carbon tax.
Mark Fitzgerald:
That’s the industrial tax.
Peter Tertzakian:
It’s not the retail tax. Lots of tax.
Mark Fitzgerald:
Thank you. Not the retail. Yeah. And that’s a separate one. As an example, one of the things that I do want to share, and it’s great for me to sit here and complain about it, but we need to do something about it. And so one of the things that we’re very, very proud of is some work that we’re doing with LNG Canada that I can, I’d like to share, that work is doing is trying to create this rigorous picture or this full picture of the full-scale emissions impact of exporting natural gas that’s produced in Canada to Asia as LNG.
And we all know that, okay, there’s intuitively, but it’s an opportunity to say “This is the impact. This is how Canada impacts that in the world.” So the Canada-East Asia Climate Action Partnership, I don’t know if I could ever say that three times fast, it’s a program designed by LNG Canada, and it’s got partnerships with academic institutions in Japan, Korea, China to study the environmental and greenhouse gas performance of exporting LNG from Canada into East Asia. And the purpose is to really try and advance this international scientific dialogue between Canada and Asia because we know that conversation exists and occurs in Canada. But if we can broaden that across to policymakers and institutions in Asia, Peter, to your point, it’s highly complex to say who gets the benefit, but if we can do that and unlock this concept of mutually beneficial decarbonization pathways for LNG as an important export from Canada that supports decarbonization and low carbon energy in Asian markets.
Jackie Forrest:
So you’re saying you’re trying to quantify like this extra LNG going to Asia, how many carbon emissions does it save over the status quo? Right?
Peter Tertzakian:
Let me ask you a really pointed question.
Mark Fitzgerald:
Sure.
Peter Tertzakian:
Does anyone in Malaysia or China care that we’re low carbon?
Mark Fitzgerald:
That’s a really good question, Peter. I’m not sure that anybody in Asia or Malaysia knows how low carbon we are. And so while energy supply will come more often than not right now from the lowest cost supply, we haven’t seen a material differentiation in this concept of a differentiated barrel or sustainable barrel. Canada needs to do a way better job marketing what we have through that lens on the global scale.
Peter Tertzakian:
Okay, so let me give you the corollary question because historically and not too long ago, the argument put forth was that countries who buy, whether it’s LNG or oil, will pay a premium for low carbon. Is that a true conjecture or not? Has it played out?
Mark Fitzgerald:
We haven’t seen it play out as perhaps as aggressively as people thought. From my perspective and from our company’s perspective, it will matter long-term. We always go through cycles, right? I mean, the emergence of drill, baby, drill down south is going to put us through a cycle. But governments change, policies change. Public sentiment, in our view, still remains around an expectation that corporations such as ours will place emissions intensity, decarbonization and global warming as a priority.
And so we will stay that course. We will stay that course. And as a result, it will take time certainly for the concept of this differentiated low carbon barrel to grab hold. But I firmly believe that it will. Canada needs to position herself in that space. And as we know, the development of LNG on the West Coast is 5, 6, 7 years.
Peter Tertzakian:
But hearing you also say we are positioned already, we are the lowest. So I guess what I’m getting at is, look, I’m not a naysayer on all this stuff, but I am a naysayer on the complex web of carbon policy that we have, which is a detriment to investment.
Mark Fitzgerald:
Agreed.
Jackie Forrest:
Well, and I want to add one other thing. In BC, they want it to be Net Zero LNG by 2030. We can’t get so far ahead of everyone that we’re totally too expensive. Is there anyone else in the world that’s asking you to be Net Zero on your LNG facility by 2030?
Mark Fitzgerald:
No, and I think your point, Peter and Jackie, is exactly the right point, that we have this complex web of regulatory policies, emissions policies, you can go through the list, that create a cost structure in Canada that is becoming uncompetitive in terms of supply. We have the benefit of having one of the low cost basins in the world, but we’re doing this all and everything we do is to create low cost and low emitting natural gas that’s being sold into a market that is amongst the lowest in the world. And so I agree with you. We have created the industry and we’ve created the opportunity. We have to now shift from producing and the value of producing to how do we change the market? How do we access the markets where the real value is? Because as we know, as excited as we are about the value flowing into the government of British Columbia between now and 2064, there’s way more.
Peter Tertzakian:
Well, I guess the path we’re on is not Net Zero by 2030, it’s zero by 2030 because we’re not going to get anything built.
Mark Fitzgerald:
We won’t get anything built.
Peter Tertzakian:
Then we’re going to be zero by 2030. And I think that this is the thing is that there’s investors that we need to obviously convince, encourage to bring their money here, but it strikes me is that now, we’re going to get a new prime minister, we’ve got this tariff issue, the realization that, hey, we got to expand our global markets from everything that we produce. So what do we need to do to encourage this kind of investment?
Jackie Forrest:
Well, and I have a question relative to that because there has been an idea put forward, like BC Premier David Eby did share a list of 18 projects that he thinks should be fast tracked. What do you know about this fast tracking and is it going to solve the problems?
Mark Fitzgerald:
I’ll go back to the first thing I said is that our political leadership has to make a commitment to make these real, first and foremost. And I think that those voices are not loud enough, first and foremost. They need to be louder, especially at the federal level because anything associated with the coastal waters brings the federal government in. The second is that there has to be a recognition that decisions are still made on the basis of economics. And while we have the lowest cost, some of the lowest cost natural gas in the world, the convolution of carbon tax, the challenges of doing a big project here in terms of the regulatory framework add significant cost and uncertainty. And as a result, the investment dollars move very, very quickly away, including for us. The third is that as we move forward, the changes that continue to occur as projects advance and more information is gained and more requirements are placed on those projects also increase the certainty and create that level of frustration, if you will, for investment dollars.
And so from our perspective as PETRONAS, we want to grow Canada. We think Canada is a cornerstone to our global LNG markets. We very much want to grow in Canada. But when you’re talking about investments in the measure of, as you highlighted with Pacific Northwest LNG, $37 billion risk becomes really, really critical in that decision. And when there’s other countries around the world that are easier to do projects in, don’t have the benefits, don’t have the strength that Canada does and everything I’ve talked about, but the risk is lower, that’s where the investment dollars are going to flow.
As a Canadian, and if I can share some of that emotional side, having traveled everywhere in the world just about in the last three years, it is exceptionally disappointing to me in terms of what we have to offer and we should never apologize for it, what we have to offer to the world that we cannot get out of our own way and find a way to do that because energy will be supplied around the world. And if it’s not from Canada, I know where it’s coming from. I have seen it. I’ve been there. I’ve met with those governments and those regulators and Canada has nothing to apologize for, but we need to recognize that we are a country that has the opportunity global players here in a material way.
Jackie Forrest:
Back to the David Eby’s fast tracking though.
Mark Fitzgerald:
By 2030.
Jackie Forrest:
What is he changing and is that enough?
Mark Fitzgerald:
Yeah, we haven’t seen anything as of yet that would indicate to us that there’s a change in policy or carbon tax environment or royalties or anything that would incentivize us to do the project on the West Coast. We’ll continue to work closely with them. I believe him at his word. I believe that there is a desire to advance these projects, but as more often than not, what I would really encourage both the Premier of British Columbia, other Premiers in the government of Canada is to start to work with organizations like ours to develop a true Canadian natural gas and LNG strategy that gets down into the nuts and the bolts and the numbers and the structures of this so that we can say, “Okay, we all want to do it.”
But we find as you start to get into the details of the project, it falls apart very quickly in terms of an understanding of what’s necessary to make that happen. And if we’re able to go together and say, “Okay, here’s a unique opportunity for our country and those of us that really want to invest in the country to build out that integrated Canadian strategy, and then let’s just drive this business forward.” Because otherwise will continue to churn on good intent, but poor execution.
Jackie Forrest:
One more question. How important is it that we get rid of this political decision? In our current regulatory process, you could go on for five or six years and then the politician of the day, the federal politician of the day can decide if your project goes forward or not. How important is it that we get rid of that? Because to me, that’s a huge political uncertainty. We’re talking about a new election now, but honestly, the way these projects are, it’ll be a different prime minister that’s in power when you’re looking for that final stamp of approval.
Mark Fitzgerald:
And I think it’s absolutely critical, Jackie. When I talk about the uncertainty, it is very difficult for me when I sit in front of a board in Malaysia to say that we can trust the process. We can trust the process that we need to go through in Canada to lead to an outcome that has a relatively acceptable band of uncertainty. Because the question often is, okay, why is it different? What’s different now? Since we did the project, we’ve got new CER regulations, there’s new requirements for the environmental components of that. And I don’t have an answer. I don’t have an answer for that. And so to your point, creating that certainty to say, “We need these projects done under a national strategy, so this is how we’ll get them done.” And we can create certainty for the PETRONAS decision to invest here, or other companies that I know would like the same.
Peter Tertzakian:
Well, let’s just talk about what’s on the line because LNG 1, as I said, my spies on the ground tell me the type’s full, and it’s starting to get… The gas is starting to get chilled for LNG, but LNG 2, what state is that at? How many billion dollar project is that?
Mark Fitzgerald:
Yeah, LNG 2 is a project that all of us want to do. There is no question. I think there’s various discussions and conversations that will continue to go on in terms of feasibility of design, emissions intensity, how do we meet the province of British Columbia’s requirement for Net Zero 2030? Is there the ability to do that project within the framework that exists? And it’s a great example of an opportunity for the province of British Columbia, LNG Canada to work together to say, how do we get this done? Because as you highlighted already, it’s difficult under the current framework to see clarity.
Peter Tertzakian:
Well, Mark Fitzgerald, president and CEO of PETRONAS Canada, thanks so much for joining us. You’ve given us a lot to think about, and in particular, this idea of an LNG strategy. I would argue it’s even under a broader tent of an industrial strategy that this country needs. And LNG is such a big part of it. It’s not multi-billion and multi tens of billions of dollars in terms of the opportunities over the course of the next several decades. If I was Prime Minister, I’d be jumping on a plane on you to Malaysia. It is just to really understand the global competitiveness of this situation. It’s such big dollars. There’s no other industry in this country that even comes close to comparing the economic opportunity that this can bring to not only Western Canada, British Columbia, but all of the entire country. We’d love to have you back once LNG 1 gets the green light and the first tanker starts sailing. You’re going to be there with a bottle of champagne. Right?
Mark Fitzgerald:
I will be there with a bottle of champagne. Whether I drink it or throw it, I’ll be.
Peter Tertzakian:
You and the other consortium members like Shell, you’re going to sort of, it’s on a rope and…
Mark Fitzgerald:
Throw it at that.
Peter Tertzakian:
Throw it at the ship.
Jackie Forrest:
Yeah. Well, Mark, we really appreciate your dedication to this. We know that this has been a long time coming for you to see LNG leave our West Coast. We hope that PETRONAS will come back despite our track record because of people like you and hopefully a different system here in Canada that attracts capital back to this country. But we really appreciate your time on the show.
Mark Fitzgerald:
Yeah, and thank you both. Really appreciate the time. Very much appreciate it. Thank you so much.
Jackie Forrest:
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