LNG OPTIMISM IS RISING

Shell, TransCanada and other players aren’t concerned with political ironies

The New Democrats continue to see hopeful developments on the liquefied natural gas front, confounding expectations of some of their critics and perhaps even a few of their friends.

“Canadian LNG plant selects contractor, edges closer to reality,” was the headline on a recent story from the Reuters news agency, initially datelined out of Tokyo.

“Shell’s LNG Canada nudges ahead,” was the way Bloomberg put the news — adding, mindful of discouraging progress on the Trans Mountain oil pipeline expansion, that “not every Canadian energy proposal is at a complete standstill.”

Both stories reported the selection of the lead contractors for construction of the Kitimat-based LNG Canada export terminal, part of an overall project valued at $40 billion.

At about the same time, Shell, lead partner in the LNG Canada consortium, was ranking the project high on its list of possibilities for global LNG development.

“It’s relatively advanced in the funnel versus all of the others in the funnel,” said Shell chief financial officer Jessica Uhl on a conference call with investors. “The question will be ensuring that it is the most competitive project and we get the timing right in terms of when those volumes would come on stream.”

Shell and its partners in Japan, China and Korea are pledged to make a final investment decision by the end of the year.

There were encouraging words as well from Trans Canada corporation, which is in line to build the Coast GasLink pipeline linking the Kitimat site with the gas fields in northeast B.C.

“It is looking very positive for this project,” Karl Johannson, TransCanada executive in charge of pipelines, told another investors’ call.

“It looks like LNG Canada has received some of the concessions they were looking for from the B.C. government and it looks like they’ve got their contractors in place now. As the pipeline supplier, we will be putting the rest of our arrangements together and waiting for a final investment decision for the end of the year that they’ve promised.”

Echoing those assessments was Patrick O’Rourke, an industry analyst with Calgary-based Alta Corp in an interview with Jesse Snyder of the Financial Post. O’Rourke put the odds of LNG Canada going ahead in the 60 to 75 per cent range.

Not surprisingly, there was a bullish statement on behalf of Japan-based JGC Corporation and U.S.-based Fluor Corporation, selected as the engineering, procurement and construction contractors for the proposed export terminal in Kitimat.

“We thank LNG Canada for the opportunity to participate in developing the first world-class LNG facility in B.C.,” said the press release from Jim Brittain, group president of Fluor’s Energy and Chemicals business.

“Our team has developed an innovative design and execution strategy that improves the project’s competitiveness and predictability and positions it for a final investment decision.”

Fluor is based in Irving, Texas. But don’t be expecting Premier John Horgan to serve up another round of sneering comments about “decisions made in corporate boardrooms in Texas,” the way he did when Houstonbased Kinder Morgan put B.C. on notice that it was prepared to pull the plug on the Trans Mountain expansion.

The New Democrats very much want LNG to go ahead, witness their decision to offer significant tax relief as an incentive to persuade Shell and its partners to proceed with LNG Canada. The relief totals $6 billion over 40 years, though the province still expects to collect

$22 billion in revenues over the same period.

Indeed, the NDP’s enthusiasm for LNG Canada was on display again last week, via Energy Minister Michelle Mungall.

She disclosed another pending development regarding the project in an interview with Business in Vancouver.

“Petronas is now investing in LNG Canada’s project,” she told reporter Nelson Bennett, referring to the Malaysiangovernment owned company that last summer walked away from its proposed Pacific NorthWest LNG project on the northwest coast.

“That was purely a pricing issue for them,” insisted Mungall, again dismissing speculation that the company had balked at the coming to power of the NDP, which opposed the Lelu Island citing of the project.

“And to fully emphasize that point,” she noted, they were now on the verge of coming back to B.C.

For the New Democrats, like the B.C. Liberals before them, the key consideration in supporting LNG development (apart from thousands of jobs in the construction phase) is the one noted by Reuters in its report: “It is considered essential for Canadian gas producers, who have access to some of the richest gas fields in the world in northern Alberta and British Columbia, but face depressed prices because of a glut of gas in North America.”

Hurdles remain to be cleared before LNG Canada could cross the end-of-year finish line of a final investment decision.

Though the project has a lot of buy-in from First Nations, there are still some holdouts along the route of the pipeline.

The company has yet to secure tariff relief from the federal government on the terminal modules it plans to construct in Asia and import to B.C.

Still, it is remarkable that the project has gotten this far along.

Thinking back to the election a year ago, who would have predicted that if John Horgan became premier, Site C would be green-lighted for completion and an LNG terminal might be on the verge of approval?

Such are the ironies of politics in this contrary province.

The question will be ensuring that it is the most competitive project and we get the timing right in terms of when those volumes would come on stream. JESSICA UHL, Shell Chief Financial Officer