Resource World Magazine

INSIGHTS & INVESTMENTS E r ic H oe sg e n & D e nnis H oe s g e n Follow the money WHY YOU SHOULD BE PAYING ATTENTION TO LIQUEFIED NATURAL GAS (LNG) T hey say "follow the money" when considering investments for your portfolio. But what does this mean? How do I know what to look for? It seems so simple, yet recognizing the signs can be difficult as they are often overshadowed in the media by the political and environmental issues that are associated with the opportunity. While political and environmental consequences should not be ignored, we should also be paying attention to the underlying investment opportunity. One of the things we, as advisors, look at when considering any investment into a particular company or sector is the increased flow of money into said company or sector. While we have said this many times before, this is a great time to revisit the flow of money as a classic example is upon us in the LNG market. First, what is LNG? Liquefied natural gas is natural gas that has been converted to liquid form for ease of storage or transport. LNG achieves a higher reduction in volume than compressed natural gas (CNG) so that the energy density of LNG is 2.4 times greater than that of CNG or 60% of that of diesel fuel. This makes LNG cost efficient to transport over long distances where pipelines do not exist. Here at home, in British Columbia (BC), we are on the front lines of what appears to be an explosion in LNG activity. A dozen LNG export terminal projects are under consideration along the BC coast, with the province's vast and largely untapped shale gas fields attracting interest from global operators including Apache, Chevron, Shell, PetroChina, British Gas, and Petronas. Three projects already have export permits from the National Energy 26 www.resourceworld.com Board, and four are under review by the Canadian Environmental Assessment Agency. The government of BC published a report recently titled LNG: Liquefied Natural Gas, A Strategy for B.C.'s Newest Industry. The first page of the report is a clear message from the Premier of BC, the Honourable Christy Clarke, where she states, "Now, with liquefied natural gas (LNG), we have a rare and exciting opportunity to build a whole new industry…where business and investment can flourish." That quote was pre-election. Premier Clarke (politically centre-right) was reelected in May in what some predict will be one of the most important elections in BC's history, defeating Adrian Dix (politically left) despite the polls predicting a Dix victory. Dix openly opposed many resource development initiatives in the province. In June, post BC-election, Malaysia's Petronas announced it will spend $16 billion to build two new LNG facilities in northwest BC in the next two years. Petronas said it will invest between $9 billion and $11 billion to construct the LNG liquefaction plants, which will be built on Lelu Island, off the coast of BC in the Port Edward district south of Prince Rupert. Another $5 billion will be invested in a 750-km-long pipeline, to be built by TransCanada Corp., that will supply gas to the two plants. LNG is widely used for transporting natural gas to markets, where it is regasified and distributed as pipeline natural gas. It can be used in natural gas vehicles as well. It is important to note over the last year the slow but steady acceptance of natu- ral gas as a transportation fuel for heavy trucks. Recently the New York Times published an article commenting that the trend seems to be accelerating. The latest sign of how the momentum for natural gas in transportation is increasing is United Parcel's (UPS) announcement that it will expand its fleet of heavy 18-wheel vehicles running on LNG, to 800 by the end of 2014, from 112. UPS, like the rest of the industry, still has a long way to go in the conversion, but the company hopes to make natural gas vehicles a majority of its new heavy truck acquisitions in two years. There are currently about eight million heavy and medium-weight trucks consuming three million barrels of oil a day while traveling the nation's highways. That is nearly 15% of the total national daily consumption and the equivalent of three-fourths of the amount of oil imported from members of the Organization of the Petroleum Exporting Countries. Roughly two-thirds of the diesel used as transportation fuel nationwide feeds three million 18-wheelers, the main trucks hauling goods over long distances. Among fleets whose vehicles travel shorter routes, like transit buses, garbage haulers and delivery trucks, use of compressed natural gas is much further along. Last year, more than half of newly purchased garbage trucks ran on compressed natural gas. The International Energy Agency predicts LNG demand could double by 2030. It is no wonder billions are flowing into the industry. But, in terms of the investment opportunity, how do you as an investor capitalize? With this being front and centre in the media, some of the service JULY 2013

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