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: Part II I n the July issue of Resource World, we published a commentary entitled Follow the Money on what is happening in the worldwide LNG market, as it pertains to British Columbia, Canada. We felt this was a great time to revisit the subject as there have been several high profile milestones in the marketplace since then, both political and economic. Plus, the share prices of many companies with leverage to this situation have been climbing steadily since our first commentary. First, a quick recap. 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, in an effort to get it to other markets all over the world. And the world is indeed hungry for cheap natural gas. Here at home, in British Colombia (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 Board, and four are under review by the Canadian Environmental Assessment Agency. In June, Malaysia's Petronas announced it would spend $16 billion to build two new LNG Trains (liquefaction and purification plants), in northwestern BC in the next two years. At the time, Petronas said it will invest approximately $11 billion to construct the LNG Trains which will be built on Lelu Island, off the coast of BC in the Port Edward district, south of Prince Rupert. Another $5 billion would be invested in a 750-km-long pipeline to be built by TransCanada Corp. that will supply gas to the two plants. Since then, Petronas has upped the potential spend two times, to a total of $35 billion. The estimate is $19 billion higher than the figure previously announced in June, since it includes costs associated with drilling wells in BC and taking over Canadian explorer Progress Energy Resources for $5 billion. The LNG trains are expected to be ready by the end of 2018 or 2019. Malaysian Prime Minister, Najib Razak, was quoted in newspapers saying that the project would make the Southeast Asian country the biggest foreign investor in Canada, and that there is a 30-year timeline for the $35 billion investment; which he said after bilateral meetings with Canadian Prime Minister, Stephen Harper, on Sunday, October 6. Petronas has said a final investment 22 www.resourceworld.com decision on the entire project will be made by the end of 2014. The firm is in talks to sell stakes in the entire project to potential LNG buyers and has finalized one such deal with Japan Petroleum Exploration Co. The BC Government published a report earlier this year entitled 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 Clark, where she states, "Now, with liquefied natural gas, we have a rare and exciting opportunity to build a whole new industry...where business and investment can flourish." In early October, Premier Clark said the province was on the verge of a landmark agreement governing the taxation of LNG exported from BC, stating that an agreement could come as early as November or December, and would potentially be entered into legislation next spring. The agreement would lay out how much energy companies must pay the government for the right to export the province's natural gas. The province's tax regime has been a point of intense negotiations between the province, which wants to build a financial war chest from its natural gas reserves, and the energy sector, which has warned that high taxation would stifle appetite for investment. It has been stated that the LNG tax could generate as much as $100 billion over 30 years for a provincial prosperity fund. The International Energy Agency (IEA) predicts LNG demand could double by 2030. It is no wonder billions are flowing into the industry. The two biggest hurdles that remain are a definite tax regime in BC and an LNG off-take agreement from an Asian buyer. Canada is competing with the US and Australia in the race to november 2013

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