Petronas - Pacific Northwest LNG project officially scrapped

[OldDutch]

Originally Posted by Zarley

The only major deal that the Conservatives killed was the BHP takeover of Potashcorp, which was done at the insistence of Brad Wall amidst a silly populist revolt. Obviously a stupid decision, but it hardly equates to "effectively banning foreign ownership of resource companies." In fact, FDI in Canada increased by 86% over Harper's premiership, with the resource sector responsible for a major portion of that.

This was actually the right move in the long run. BHP (Australian based) is a massive mining company with their fingers in multiple areas to diversify against huge hits in any one commodity area. They're not a potash company, they're a mining company.

The significance was Potash Corp (PCS) was another diversification for them. Given the current Potash market it is not far fetched to think they would have already shuttered many of the Potash mines PCS owned, many in Saskatchewan.

In the long run PCS is merging with another major Canadian player in Agrium to form Nutrien. The end product if the deal closes later this year is the largest fertilizer company in the world ($30 B+), a Canadian one, and with two head offices in Saskatoon and Calgary. Most significant is that Nutrien will have 2/3 of the world potash supply. Which will help fight off the Russians who are dumping the stuff on the market, and most likely save mines from closing.

Long and short, we can agree that it was right thing for wrong reasons, but in this case it very much was a smart move for Saskchewan, Calgary, and Canada in particular.

[afc wimbledon]

It doesn't make much sense to dig a commodity out of the ground when the price of that commodity is really low due to a world wide glut and we, both as a province and country are doing pretty ok right now.

Makes sense to drill for gas to power Canada, cheap electricity is an economic driver, the export market makes no sense right though.

[Husky]

Originally Posted by afc wimbledon

It doesn't make much sense to dig a commodity out of the ground when the price of that commodity is really low due to a world wide glut and we, both as a province and country are doing pretty ok right now.

Makes sense to drill for gas to power Canada, cheap electricity is an economic driver, the export market makes no sense right though.

Its a long term strategic investment. When (assuming they do) prices rebound even a bit, without being able to turn the taps on - Canada loses. And at that point you continue to fall further back in global market share.

[accord1999]

Originally Posted by afc wimbledon

Makes sense to drill for gas to power Canada, cheap electricity is an economic driver, the export market makes no sense right though.

Ironically, while Australia moved quickly to win the LNG race, its governments have made natural gas production difficult which has caused problems with the domestic supply, and combined with the shutdown of several coal power plants, resulted in large increases in the cost of electricity.

[afc wimbledon]

Originally Posted by Husky

Its a long term strategic investment. When (assuming they do) prices rebound even a bit, without being able to turn the taps on - Canada loses. And at that point you continue to fall further back in global market share.

It will be many decades before the fracking bonanza dies down a bit, now granted if some company wants to take a chance on building a plant I'm not saying we should stop them but I wouldn't spend public money on it either.

[Husky]

Originally Posted by afc wimbledon

It will be many decades before the fracking bonanza dies down a bit, now granted if some company wants to take a chance on building a plant I'm not saying we should stop them but I wouldn't spend public money on it either.

Not saying fracking will die down - saying that without export infrastructure AB is a one trick pony to the US and will forever have a large price discount on gas prices due to US constraint.

[Flash Walken]

Originally Posted by Husky

Not saying fracking will die down - saying that without export infrastructure AB is a one trick pony to the US and will forever have a large price discount on gas prices due to US constraint.

And this is part of a geopolitical strategy to impoverish other energy reliant states like Russia.

The US is all in on their own energy supply because it has crippled their major geopolitical foes.

There is basically nothing anyone will be able to do to resist that new reality.

From 2013:

ZUCKERMAN: Right now it's about 89 million barrels per day. And we, the United States, are responsible for production of about nine percent of that - about eight million barrels. And that's up since 2005, when we were at about five million barrels. We've added about four percent to the global supply of crude.

INSKEEP: That's a big deal.

ZUCKERMAN: It is. And at the margin, it's a really big deal. It's not to say people kind of say to me well, Greg, you wrote this book about the energy revolution, why aren't I paying a lot less at the pump? And I'm not sure we're going to be paying a lot less at the pump, but it's relative to what we would have to pay. Had this revolution not taken place we wouldn't have been able to do the kind of sanctions and boycotts of Iran that we've orchestrated and we would be paying a lot more. And so it has had an effect for consumers.

INSKEEP: Are you willing to argue that if the United States had not been able to boost its production of oil in the last several years that the global sanctions regime against Iran would be a lot weaker - would have fallen apart? There would be other countries that would say there's just not enough oil in the world, we need Iran's oil far more badly than you realize, America?

ZUCKERMAN: Yeah. I do think that the temptation to not participate in the sanctions of Iran would've been much greater had it not been for this fracking and energy revolution in the United States. It's not to say that we wouldn't have had partners and allies in the effort, but not everyone would've participated like they are today.

INSKEEP: You know, it's nice to be able to think that the United States would be less dependent on a frequently unstable region like the Middle East. But is that something of an illusion? Because it is a global market and if supplies from Saudi Arabia say, are disrupted or supplies from Iraq are disrupted, even if that oil wasn't going directly to the United States, it's going to affect oil prices in the United States.

ZUCKERMAN: That's exactly right. As long as we care about oil, we're going to care about the Middle East. But at the margin, it's going to give us a lot more flexibility. I really think that we are going to be less involved in the Middle East. And I really think countries like China are going to become more important and more involved in the Middle East. And frankly, the kind of military experts I talked to are still trying to figure out if that's a good thing or a bad thing. But either way we're going to be much less dependent on the Middle East and much less involved in the Middle East and energy is going to play a much bigger role.

Last year, Hillary Clinton, when she was Secretary of State, she created a dedicated energy bureau within the State Department, and she said energy is going to play a bigger role in future diplomacy, and I think that's really going to be the case.

http://www.npr.org/2013/11/14/245149...lital-leverage

From 2016:

Many have credited the fracking boom, which peaked in the last few years, with a new American independence. The thinking goes that with domestic production soaring, the U.S. is less dependent on other nations for energy supply and so less vulnerable to the demands and strife of oil-supplying countries.

For one, fracking has had an indirect hand in foreign policy. The Obama administration’s ability to impose sanctions on Iran in 2010 and 2011 can be linked back to the shale boom, according to Sam Ori, executive director at University of Chicago’s Energy Policy Institute. Ori spent several years at a Washington-based think tank focused on energy policy and national security and worked at the State Department prior to that.

“A big part of the reason why they [the Bush administration] didn’t ultimately impose really harsh sanctions on the oil industry is because they were concerned about what that would do to the oil market, the oil price and the global economy,” Ori said in an interview.

There was concern that the global market wouldn’t be able to compensate fast enough if Iranian fuel was taken off the market at that time.

“From an oil market standpoint, the shale boom really provided the flexibility to do that,” Ori explained.

Still, there is a problem with the energy independence argument. Fracking has boosted the rate at which oil and natural gas can be extracted from wells, but despite now being one of the world’s top exporters, the U.S. still imports huge amounts of oil and petroleum products.

The U.S. exported more oil than ever in 2015: 4,750,000 barrels a day, according to the U.S. Energy Information Administration. That same year, the U.S. imported 9,401,000 barrels per day. When you compare that to 2005, the year with the highest imports in decades, at 13.7 million barrels a day, the difference is not as striking as you would expect, especially when U.S. exports for that year were only 1.2 million barrels a day.

http://nationalsecurityzone.medill.n...s-of-fracking/

[Flames89]

Originally Posted by Frequitude

... (lots of good informed points)...

...You got played, BC. And it'll cost you billions. Stop fighting over which provincial party to blame and look in the mirror. *slow clap*

Did you just slow clap your own post??

[Weitz]

I still find it shocking this stupid country imports oil from the Middle East and can't build pipelines. Pathetic.

[BloodFetish]

Originally Posted by accord1999

Ironically, while Australia moved quickly to win the LNG race, its governments have made natural gas production difficult which has caused problems with the domestic supply, and combined with the shutdown of several coal power plants, resulted in large increases in the cost of electricity.

I just saw this today on the topic.
https://www.theglobeandmail.com/opin...ticle35856731/

[Fighting Banana Slug]

Originally Posted by BloodFetish

I just saw this today on the topic.
https://www.theglobeandmail.com/opin...ticle35856731/

That is interesting, but I don't think there is a logical connection to the overbuild in Australia and what prevented any type of build here in Canada. It would be awesome to say that our "sober second thought" actually addressed the supply/demand issues and other economic and social issues that may result. Instead, our regulatory environment was drowning in all sorts of disparate voices, each trying to knee-cap the projects with rhetoric and questionable motives, without much focus on some of these legitimate concerns.

We might have dodged a bullet, but it wasn't by some grand design and clear thinking. Quite the opposite in my view.

[Flash Walken]

Originally Posted by Fighting Banana Slug

That is interesting, but I don't think there is a logical connection to the overbuild in Australia and what prevented any type of build here in Canada. It would be awesome to say that our "sober second thought" actually addressed the supply/demand issues and other economic and social issues that may result. Instead, our regulatory environment was drowning in all sorts of disparate voices, each trying to knee-cap the projects with rhetoric and questionable motives, without much focus on some of these legitimate concerns.

We might have dodged a bullet, but it wasn't by some grand design and clear thinking. Quite the opposite in my view.

Obviously things like native consultation and environmental regulation hampered the development, but the tax/royalty scheme delay was probably the biggest factor. The other biggest factor was Petronas' insistance on extensive use of foreign labour. This put a huge squeeze on the BC government, as they promised this would be a boon for the construction/trades of BC.

From what i've heard talking to people I know in government, a big reason for that delay was the inability of prices to stay relatively stable. It was exceptionally difficult for the BC government to come up with an appropriate royalty scheme in the midst of massive price fluctuations.

2014:

British Columbia has vastly scaled back its expectations for its anticipated liquefied natural gas riches, in sharp contrast to the political high hopes for the province’s fledgling LNG industry during last year’s election campaign.

Blaming declining global prices for LNG and rising construction costs, the B.C. Liberal government introduced legislation on Tuesday that slashes its proposed rate for an LNG income tax, and adds tax incentives for LNG companies, meaning the province is now banking on a smaller flow of revenue.

“The opportunity remains, but the design and the tax structure needs to take into account changing circumstances in the market and potential for return,” Finance Minister Mike de Jong said on Tuesday. “It’s not quite as lucrative as it once was.”

During the election campaign in the spring of 2013, the B.C. Liberals touted a plan to retire the provincial debt with a “prosperity fund” that would begin collecting revenue from LNG by 2017. The campaign platform stated that the fund would reap as much as $100-billion over 30 years.

But the Finance Minister is now vague about whether there would be such a lucrative fund at all.

“We set out some objectives, firstly debt reduction and secondly the allocation of proceeds from the creation of a new industry to a fund that would be available for a range of activities,” Mr. de Jong said. “I prefer to think of the revenue stream to government in the overall sense.”

An official later clarified that revenue from natural gas royalties and LNG income tax will still be devoted to the prosperity fund.

LNG proponents criticized February’s provincial budget, which proposed a tax rate of up to 7 per cent on LNG companies’ net income once the terminals recover the capital costs of what are expected to be multibillion-dollar plants.

The initial income tax rate will stay at 1.5 per cent as originally envisaged, but the second tier will be 3.5 per cent instead of going as high as 7 per cent. As an added incentive to spur LNG ventures, the B.C. government has introduced a new provincial natural gas tax credit that will in turn shave corporate income tax rates to as low as 8 per cent from the current 11 per cent.

The B.C. government is optimistic that many of the 18 LNG proposals so far will become reality, but industry experts say only three or four have a strong chance of being built.

Energy analysts warn that British Columbia could miss out on the global LNG export party because projects in other jurisdictions have a head start, including Australia, Qatar, Nigeria and the United States.

2014:

Although there are extensive rules to address these problems, there will remain significant uncertainty on how to calculate accurate prices for purposes of the LNG tax legislation and therefore, on how much LNG tax is actually payable.

The LNG tax will be imposed on a two-tier basis. The first tier tax is 1.5% which is unchanged from the original proposals. After recovery of capital expenses, the second tier tax applies at 3.5% until it increases to 5% after 2037.

The first-tier tax is essentially a tax on cash-flow, determined without deducting financing expenses, such as interest and principal payments on debt incurred to build the LNG project.

Originally, the 1.5% tax was to be charged without any deduction for the costs incurred to build the plant. However, the draft legislation proposes to allow a deduction that will provide some recognition of construction costs. The deduction rate was not released with the draft legislation, so the benefit remains unclear.

The second-tier tax is also imposed without providing a deduction for financing expenses. However, it only applies after income from the project, determined before deducting financing expenses, exceeds the capital cost of the project. In some cases, such as where a natural gas owner contracts with an LNG plant owner to processes their own gas, the second-tier tax will apply immediately because the gas owner will not qualify for a capital cost deduction, since it does not own the LNG plant.

The LNG tax legislation includes a credit that can be applied to ordinary provincial income tax, which is based on the cost of gas acquired for use in an LNG plant. The credit can be used to reduce provincial income tax, subject to a maximum reduction from the current 11% rate to 8%. Since the credit is only available against provincial income tax, it will provide no benefit for LNG exporters who are not subject to British Columbia income tax, either because they are resident and taxable in another province or because they are not resident in Canada.

While the LNG tax legislation offers rate reductions and other concessions that will be welcomed by industry, the lack of clarity in how the rules will apply to calculate the amount of tax to be paid, coupled with the fact that no other jurisdiction imposes an equivalent tax on LNG exports, raise questions about whether the government has satisfied its key design principles of a fair return for British Columbians, creating a competitive LNG jurisdiction in B.C. and predictability and consistency for LNG developers. The impact the tax will have on B.C.’s plans to establish an LNG industry remains to be seen.

http://business.financialpost.com/co...d-472dbfe0174d

2016:

Grim, bleak, dismal. Pick your adjective. B.C.’s other major LNG investors have delayed their final decision to proceed because of the grim scenario that was outlined in June by the International Energy Agency.

The agency, a Paris-based monitor of how the earth is powered, put out a five-year projection that had global demand for natural gas rising 1.5 per cent annually, down from the previous year’s projection of two per cent.

Meanwhile, between 2015 and 2021, global LNG capacity will soar by 45 per cent as new facilities already under construction, mainly in the U.S. and Australia, come on line. The resulting glut is one reason analysts like Ed Kallio, with Calgary-based Gas Processing Management Inc., predicts that Petronas, Pacific Northwest’s controlling shareholder, will delay its investment decision until markets improve.

“It’s a very tough hurdle to overcome in order to get this project going,” he said, adding that the problem wouldn’t be as severe had Premier Christy Clark not taken so long before producing in 2014 its LNG income tax. That delay, according to Kallio, resulted in debilitating uncertainty when global gas markets were far more conducive to major investments.

http://calgaryherald.com/storyline/f...deral-approval

When you go through and read the articles chronologically it is easy to see the end result. Waning demand and exceptionally low commodity prices made coming up with an appropriate tax regime a political disaster for the BC government.

The economics of the project haven't made sense in years. Everyone was just hoping for a market turn around to justify the project. That turnaround hasn't materialized.

[afc wimbledon]

Personally I'm proud to live in a country that considers getting permission from native bands before it runs a road or pipeline over their lands a good thing.

Australians are utter ######bags around this frankly

[Tinordi]

The real delay rests with Christy Clark and the provincial government. After stupidly proclaiming that LNG would bring a $100 billion prosperity fund to BC and then winning the election, the market for LNG started to buckle. And further, Petronas knew that Christy Clark needed LNG more than they did. So they had all the leverage in the negotiations.

The *real* delay had frankly little to do with First Nations (who were mostly key supporters) or environmentalists. Sure there was some opposition but nothing that was a key stalling point.

The real delay was the provincial government trying to salvage any kind of public good out of the LNG deal. Petronas chose the sweat them out until they got a paltry agreement on royalties. The government could have approved the facility a full year before they did while Stephen Harper was still the PM. But they couldn't lose face politically.

Anyway, LNG was never going to happen in Canada. The arbitrage opportunity was just a mirage. Australia's LNG industry wasn't on the same starting blocks as Canada's. Gorgon received its final investment decision in 2009 for pete's sake - 2 years before the Fukushima crisis that spiked LNG prices. Of course the Australians were going to swamp the market with LNG right around this time, because they had a 5 year head start. A lo and behold, once all that LNG came to market the price buckled.

The US was in a similar position. They have massive amounts of brownfield LNG sites already there as import terminals. It's a relatively simple process to convert re-gassification facilities into liquefaction facilities for export. And all of the supporting infrastructure is already in place. Contrast that to BC. To export a single tonne of LNG, Petronas had to build a brand new port and and giant liquefier as well as a 700 km greenfield pipeline through rugged, mountainous northern BC! It was a hugely ambitious project that would have taken years, had huge amounts of risk, and was selling into a market where the bottom is still undecided.

Further, LNG in Asia was premised on insatiable demand persisting for the next 30 years. Instead that demand has basically dried up. I mean, one of the basic bets for LNG in Asia was that Japan would not fire up their nukes and would substitute for LNG. Seems like a bizarre, naive bet, which it was. Japan has since gone with its infrastructure in place rather than become more dependent on LNG. Korea's LNG demand is way down because energy efficiency is severely undermining anticipated electricity demand growth. Seoul replaced a million bulbs with LEDs in less than 2 years. At the margins, those actions have huge consequences. Now Korea's electricity demand growth is nowhere near what's needed to meet the LNG demand scenarios to make BC LNG work. And finally, China, that was always just a hope and a prayer. China has never really put pen to paper on a big LNG train. They opted for a giant pipeline to Russia and heavy renewable investment.

So yeah, there you have it. The familiar, worn out narrative of Canada being too slow, it's environmentalists and First Nations too powerful simply doesn't hold in this case. If you want to blame anyone, blame Christy Clark and her laughably juvenile negotiating and understanding of the market.

[accord1999]

Originally Posted by BloodFetish

I just saw this today on the topic.
https://www.theglobeandmail.com/opin...ticle35856731/

I don't think if Canada was the first-mover it would have had the same issues though. The damage to Australian consumers from high energy costs occurred from a combination of the desire to replace coal electricity generation (which formed the bulk of Australia's electricity system) with wind and solar, which greatly increased natural gas demand as it was needed to make up for the unreliability of renewables. But then the various Australian governments made it more difficult to develop new supplies of NG, which made the supply issue worse.

Canada's not in the same position, given that it's electricity generation is more dominated by hydro and produces significantly more natural gas and allows fracking to be used in a significant way. Export demand could be replaced with additional production.

[Fuzz]

Our problem is, this is the stuff we are competing against:
http://cellar.org/showthread.php?t=32956

Where they just buy off politicians and build pipe right through housing areas. Not that I would ever advocate for that kind of thing, it's just so much easier for companies to get projects done in the US and elsewhere.