FID + 4

April 19, 2014

As yet no major LNG proponent in northern BC has announced its ‘Final Investment Decision’ or FID. Two proponents are getting close. A positive FID in 2014 would mean huge capital investment activity in northern BC in 2015-2017 and have a dramatic impact on the labour and housing markets.

About 240 million metric tons of LNG are consumed annually now, or 32 billion cubic feet a day. ExxonMobil forecasts demand of 490 million metric tons by 2030 and 600 million metric tons by 2040. Lots of projects could around the world could meet that demand — there are two units of potential supply for every unit of expected demand. British Columbia has 14 LNG projects under consideration. If all came to fruition BC would surpass Qatar and Australia for the lead in production. ExxonMobil forecasts that 110 metric tons of North American capacity will be online by 2030—including projects in the lower 48, BC and potentially Alaska.

LNG pricing is extremely important for project sponsors. They’re looking at tremendously expensive projects with long lead times and need some certainty that by the time the first cargo is ready to ship, they’ll be able to sell the LNG at a price that ensures good returns.  There is plenty of conventional gas in Alaska and unconventional in BC to justify LNG exports. Both will involve long, expensive pipelines. Both are considered “greenfield” developments.

Rigorous, obsessive financial analysis of such projects is the norm in the lead-up to FID. Although these and other calculations take time, the project, ideally, should drive the schedule, not the other way around.

In the lower 48 the shale gas boom hit the United States, rendering most of the terminals obsolete as import facilities. At least six of them didn’t bring in any LNG in 2013. Many of the owners are now pushing to transform their LNG import terminals into export facilities.

Petronas is planning a major LNG project. Pacific NorthWest LNG will generate an estimated 330 long-term careers in the community, plus generate about 300 new local, spinoff jobs. Up to 4,500 jobs will be created at peak construction. Petronas is expected make its FID in a positive way in 2014. The whole project has a $36B pricetag.

Alaska’s FID decision in not expected until 2019, at the earliest.

 

Commentary

The key uncertainties for Petronas concern pricing, taxation and ability to complete the project as planned. The economic impact of a positive FID would occur mostly in 2015 - 2017 as the multi-billion dollar capital investment drives demand for labour, housing and supplies.

Sources

• a)http://www.arcticgas.gov/final-investment-decision-big-breakthrough and http://www.arcticgas.gov/exxonmobil-foresees-multiple-lng-projects-needed?utm_source=Arcticgas.gov+Distribution+List&utm_campaign=2ef466b425-LNG+buyers+continue+to+seek+price+relief&utm_medium=email&utm_term=0_7eb428ef8a-2ef466b425-407627541



• b)http://business.financialpost.com/2014/03/18/petronas-b-c-lng-project-attracting-attention/?__lsa=356c-6f0f



• c)Brent Yang, "Petronas emerges as LNG leader", Globe and Mail, 27-Mar-14, p.B5.