Written by Grant G
The pitfalls of the BC Liberals putting all our financial eggs in one LNG basket, the hits to Christy Clark`s and the BC Liberal`s promised $trillion dollar fantasy just keep coming..
As reported in the below post Japan will be restarting all of their nuclear facilities, Japan is making that decision for domestic financial reasons, yes there are many opposed to restarting their nuclear power sources but even more Japanese people are worried about being held hostage by countries like Canada and Australia..
The result of Japan`s decision to restart these plants is a deathblow to expanded LNG exports to that country, Japan has its natural gas needs filled at this time, however Domestic Japanese utilities are losing their shirts by buying imported gas, also the Japanese Government is losing $billions in revenue, revenue which it is in dire need of, if utilities lose money they don`t pay taxes, Japanese electrical consumers face extreme increases in their power consumption bills thus decreasing their domestic spending power, this scenario results in an economic debilitating snowball effect, it`s growing exponentially..
This problem was and is the catalyst for Japan`s new leader Shinzo Abe to fast-track the restarting of all their temporarily shuttered nuclear plants..That`s where the story turns to British Columbia, Christy Clark specifically cited the high prices Japan was paying for natural gas in her $trillion dollar dreams..With Japan restarting their nuke plants and already served by natural gas exporters, and with British Columbia still 7 years away from exporting any LNG(if energy companies actually build in B.C.)...Japan`s natural gas demands will go into freefall, and as mentioned here in many posts, if Japan is anywhere near successful as they think they will be with developing ocean hydrates, the outlook for British Columbia LNG exports to Japan is very bleak, it`s already a declining market for natural gas with the resumption of their nuclear plants, if Japan is successful with tapping ocean hydrates the market for Japan will be dead not just for British Columbia but even Japan`s current LNG providers, that being Cheniere, energy, Qatar and Australia...And the hits just keep coming for Christy Clark`s long distance dream..
Australian LNG exporters even before their 7 new LNG plants come online in the next 2 to 3 years are in trouble, India is demanding new energy buying contracts, they want lower prices, China wants lower prices and Japan..All of Asia is putting the squeeze on Australia to match Cheniere`s LNG price formula, that being a new price structure linked to the North American Henry Hub price for natural gas...That price is a fraction of what Chtisty Clark pre-election blathered about ..Christy Clark mused about getting $16 to $18 dollars in Asia for British Columbia natural gas, she talked about a $trillion dollars for British Columbia, our $170 billion dollar BC debt being eliminated, BC Hydro debt eliminated, BC Ferry debt, the removal of sales tax, the removal of tolls on bridges as well $hundreds of $billions of dollars in a prosperity fund for future generations..
Well well well, it appears that price Christy Clark speculated about, the price she presumed B.C. would sell natural gas to Asia at has been more than halved..
"Australia’s gas export contracts are facing stiff competition from the United States as Asian customers insist on cheaper LNG from two of the country’s big ventures.
While India is demanding lower prices on one of ExxonMobil’s Gorgon contracts, Woodside Petroleum is facing price problems in its Western Australian Pluto project, The Australian reported.
According to Indian newspapers, state-owned gas company GAIL is asking for cheaper prices on gas it has consented to purchase from Gorgon through Petronet, according to Indian newspapers.....
India’s Economic Times reports Petronet is checking whether it is feasible to renegotiate its contract to purchase 1.5 million tonnes of LNG a year from Gorgon.
“The circumstances under which price provisions were agreed in the said sales purchase agreement for Gorgon have changed significantly and the same has long-term implications for Petronet and the regassed LNG off-takers (and Petronet shareholders), GAIL, India Oil and Bharat Petroleum,” GAIL said in a letter to Petronet.
Pluto’s two clients, Tokyo Gas and Kansai Electric, are demanding Woodside take changing global gas conditions into consideration for price talks over their 15-year contracts.
This could mean new Pluto prices will not be as bountiful as large WA gas contracts signed on other LNG projects such as Gorgon.
The situation puts Gorgon operator and 50 per cent owner Chevron in a difficult position, which lost a $30 billion gas contract with Korea Gas. This means 35 per cent of its volumes from the 15.6 million tonnes a year venture remains uncontracted.
Woodside and its two Japanese Pluto clients are in discussions to change LNG prices to correspond with present market prices from April. This is when a ‘sweetener period’ that capped at around $US8 per million British thermal units will finish.....
Focus has increased on gas buyers in the past few months as the US granted a second LNG project to export to countries without a free trade agreement. Russia wants to redirect gas and LNG to Japan and China as demand dips and pricing in Europe reduces.
Price pressure on uncontracted Australian LNG volumes, and those with contract clauses that permit pricing structures to be modified in correspondence to market prices every three to five years, has been in the offing.
But the proposal to renegotiate a current contract from India will call into question the effectiveness of pricing formats set in 15-20 year LNG contracts, particularly those signed with India and China. Analysts have cast doubt over their commitment to long-term contracts.
It will also impact Australia’s LNG export returns and tax take.
Ok, here`s the staring British Columbia in the face scenario....Japan as a market for British Columbia LNG has literally evaporated before it even started...Australia has upcoming elections, LNG companies are having their newly saddled carbon tax removed, that will result in the Australian Government running budget deficits and having to cut services for their population..
Australia has 7 new LNG facilities coming online in the next couple of years, many of these facilities have no long-term energy buying contracts inked, contracts with Korea and India, and other Asdian countries that have already been inked are now being pressured to renegotiate, or else, or else these countries will buy from someone else, like East Africa, or Russia, or Qatar and now the USA, ....Russia too is now looking at Asia for a destination for their ample supplies of natural gas, as prices in Europe are falling fast..
China buying up energy companies like Nexen was done with a purpose, securing not only assets but more importantly buying up fracking technology they can employ in mainland China, early estimates state that China has reserves of natural gas larger than the USA and Canada combined, all China is lacking is the widespread technology, they are however very fast learners..
As these LNG facilities in Australia come under pricing pressure industry experts state that not only will these energy companies have much smaller returns on their investment but the Australian Government itself will have their financial expectations dashed too..
"It will also impact Australia’s LNG export returns and tax take."
And, I remind you that Christy Clark has stated that "British Columbia will be the world`s most competitive LNG jurisdiction in the world", that means the lowest taxed(on the energy companies) jurisdiction in the world..
Meaning her $trillion dollar dream has now turned into a multi-million dollar dream..
And as you know, no energy company has made any final decision to build anything in British Columbia, those decisions have been put off until late 2014 to 2016...If that`s the case nothing we be online until 2021 or later, and at the speed of which the profitability has tanked, the likelihood that anything will be built in British Columbia is fading to black fast..
Lastly, the energy companies negotiating in Australia, in east Africa, in Qatar, in the USA are the same companies negotiating in British Columbia...These facilities cost tens of $billions to build, these companies need huge returns on investment to justify the expense, and unless these companies are assured they come first with profits, they will build nothing..
The race to the bottom continues, and as for Rich Coleman stating "we are in a race with Australia"....How do you figure, Australia has a new facility that just came online and seven more LNG exporting facilities coming online in the next 1 to 3 years, B.C. doesn`t even have a shovel in the ground...How is that a race when we are still contemplating what type of running shoes we will buy..?
The Straight Goods
Cheers Eyes Wide Open