LNG, Close To The Edge Down By A River, We Get Up, We Get Down

Michael Smyth wrote a rather strange article today on LNG, as per usual with Michael Smyth his article was thin on facts, no research and to be quite honest, his blather was hardly worth reading...

Before we get into the REAL details let`s have a look at some of the odd statements and observations made by the lazy one..

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The government says it will use revenue from proposed liquefied natural gas exports to create a $100-billion "Prosperity Fund" that would wipe out the debt forever.....

But how can that happen without taxing the nascent LNG sector to the hilt? And exactly how big is that tax bill going to be anyway? That's what big oil-and-gas companies want to know before they decide to invest here.
"Those details need to emerge," Andy Calitz, vice-president of Shell-led LNG Canada, told the Wall Street Journal last week......


"We need to know with certainty about the level and the stability of that (tax issue) by 2014."........


Clark told the same newspaper in June the government hoped to have an LNG tax regime "nailed down in the next couple of months."........

 That was two months ago. On Monday, the government released a brief statement saying release of the tax scheme "is dependent on a number of factors including LNG investments and economic conditions."

 There's no doubt British Columbia is in good position to take advantage of Asian demand for liquefied natural gas. Investors are drooling over inflated Asian prices and there are about a dozen multibillion-dollar proposals to build export terminals on the B.C. coast......

 "We will be the most competitive jurisdiction for liquefied natural gas anywhere in the world," Clark assured the Wall Street Journal....



Can the Clark government achieve that, while extracting enough revenue from a startup industry to eliminate the debt as promised to B.C. voters?
I doubt Clark is sweating those kind of pesky details. As officials race to get an LNG industry up and running, I wouldn't start planning any "debt-free B.C." mortgage-burning parties any time soon.

 http://www.theprovince.com/news/Questions+remain+about+windfall/8781812/story.html
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 Let us start at the top of the above statements and quotes...

1-A $100 billion dollar prosperity fund from a proposed LNG export industry, enough to wipe-out the debt forever????.....am I missing something, how can one start counting monies from a proposed industry, shouldn`t we get the industry started first?....Also, forever is a long time, even if there was LNG revenue does anyone believe Government, any Government wouldn`t spend it and more...What Michael Smyth is missing is...Christy Clark promised LNG would not only wipe out our debt, Christy Clark said LNG would also fund new hospitals and new schools, eliminate tolls, eliminate crown debt at BC Ferries and BC Hydro..Eliminate sales tax and ALSO CREATE A $100 BILLION DOLLAR PROSPERITY FUND...

Where was Michael Smyth before the election, where was Global, the Vancouver Sun, ...They were busy collecting Government advertising revenue that`s where..

2-Do you see the above in big letters, I made that big because....What the hell does it mean...?..The Government said Monday it ...

"That was two months ago. On Monday, the government released a brief statement saying release of the tax scheme "is dependent on a number of factors including LNG investments and economic conditions." 

Which is it, the BC Government is not releasing details of the tax scheme or not releasing what the tax scheme is?...What does that mean?...How can a tax scheme depend on LNG investment or economic conditions, what does that mean, does it mean if only 1 LNG plant is built taxation is high, or low, and what of economic conditions, what does that have to do with taxation, ...

3-..Investors are drooling over inflated Asian pricing...who are these investors, do you mean giant energy companies and their shareholders?..Petronas is a state owned company, CONOC is a state owned company, Japan has state owned companies showing interest, do investors put money into individual LNG plants?...No, investors buy shares in Shell, in Chevron..or in LNG price futures, investors aren`t funding these LNG plants...And Michael Smyth mentions "inflated Asian price"...Inflated means a ripoff price, probably a temporary price, ...

4-Lastly Michael Smyth states we are in a race with Australia and others to develop LNG, that`s not true, we aren`t racing anyone, we haven`t a shovel in the ground meanwhile Australia has a handful of giant LNG export plants coming online, as does other world countries, being in a race actually means running, no one has decided to build anything in BC..The earliest anyone has said they will make a final investment decision by is late 2014 to 2015..

How can we be in a race when these facilities are now happening or soon to be..and we haven`t even a shovel in the ground!

Michael Smyth`s article leaves more questions than answers, ...Smyth mentions Clark speaking to the Wall Street Journal, which she did, that was back in early June/2013..

Here is what Christy Clark said...

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"British Columbia Premier Christy Clark said her government was in tax negotiations with one project and said that would serve as a model for others. She declined to name the project.
“We’re getting toward the end of our negotiating with one of the big companies that’s in play and setting out the business case that all of the companies will play by,” she said. “I do hope we’ll get it nailed down in the next couple of months.”

 http://blogs.wsj.com/canadarealtime/2013/06/14/british-columbia-working-with-industry-on-proposed-lng-taxes/

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Clark said she was negotiating a tax regime with one of the proposed builders, well, it obviously isn`t Shell LNG that she is talking to, because according to Shell LNG they have been shut out of tax talks and they are demanding to be informed, and as soon as possible or....

And that puzzles me, Petronas, Chevron, Shell, CONOC, Petro-China, these are huge multi-billion dollar companies, some state owned some private, why wouldn`t the negotiations be with all of them, certainly the tax regime for export LNG would be the same for all players, not a mish-mash of different tax structures..different strokes for different folks...

But one thing is very clear to me, Shell LNG is pissed off and demanding answers...From an article last week..according to the article, all energy companies are "Rankled: with the BC Government..

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"The British Columbian government is mulling a tax on future LNG exports earmarked for a so-called “Prosperity Fund” to alleviate its debt load. But it hasn’t announced how such a tax will be levied and at what rate, something that has rankled companies with plans to build LNG terminals in the province.

“Those details need to emerge,” Andy Calitz, vice president of Shell-led venture LNG Canada, said in an interview. “We need to know with certainty about the level and the stability of that [tax regime] by 2014″ when Shell and its partners hope to make a final investment decision on the project, he said.

LNG Canada is one of several major energy companies that have proposed facilities for Canada’s remote Northern Pacific Coast and which could start LNG shipments to Asia by the end of this decade. But construction has yet to begin in earnest on any of these projects amid lingering concerns about their viability."

 http://blogs.wsj.com/canadarealtime/2013/08/08/shell-prods-british-columbia-to-clarify-proposed-lng-tax/

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So, Shell and others are rankled, yet Christy Clark said months ago she was in negotiations with a major player, how come all the major players aren`t being kept informed on taxation, unless Christy Clark is bullshitting or all out lying, because like I said, Shell LNG would expect the same taxation deal as Chevron and vice-versa...If what the BC Liberal Government says is true ....How could you have 10 major projects all selling LNG to Asia and all have different taxation structures, they would have to be the same...Someone is obviously lying, my guess it`s Christy Clark lying about being in taxation negotiations...David Schreck has filed FOI requests on this topic but received nothing...

Anyway, I read a couple of very interesting articles in the last week...One article mentioned the expected growth in LNG use through to 2020...And the other about LNG in India...but first.

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India's per capita income (nominal) is $ 1219, ranked 142nd in the world

China.... Average gross salary $457 monthly (2010)^[6]

Japan`s median income is about $19,500 US dollars

South  Korea median income is about $22,500 US dollars.

As you can see, India`s income levels are sad, so are China`s...

So I am asking, how much can India or China afford to pay for imported LNG?...How long will there be an Asian LNG price differential..Average yearly income in India is $1219 dollars per years, in China around $5000 dollars per years...Yes Japan and South Korea make fairly good money and can afford to pay, but really, can Indian workers afford more than about $100 dollars per year on electricity?...How much can Chinese workers afford to pay, I and others contend that the Asian  LNG price premium will soon vanish....If it does not, India will not be a buyer of LNG, India will use cheap coal for electricity..From :The Indian Express:

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Future of LNG projects not so rosy

 It seems that the future of the proposed electricity generation projects, six in number, to be powered by Liquefied Natural Gas (LNG) is not quite perfect, as far as the state is concerned. The major reasons cited against the projects include a steep fall in INR, hike in domestic gas price and its non-availability, lack of long-term contracts to ensure LNG’s availability at cheaper prices, patchy natural gas networks and the high cost of power generated from LNG plants. Experts point out that, considering the current price of natural gas, which hovers around $14 per MMBtu, the per unit cost of power from the proposed plants would be around Rs 9, which is considered costly.........

 “Owing to many reasons, the proposed LNG-based power projects are moving at a snail’s pace. The main reason is the unavailability of fuel at cheap rates. It is high time the govt intervened and took steps to implement at least some of the proposed projects,” said M P Sukumaran Nair,....

 "The pricing of gas is the obstacle that stands in the way of  theprojects. The govt should ensure 50 pc of the domestic gas supply to these plants to make them feasible,” an official at KSIDC, which is implementing the Cheemeni project said...

 http://newindianexpress.com/cities/kochi/Future-of-LNG-projects-not-so-rosy/2013/07/29/article1707140.ece

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So there you have it, India wants LNG but not at the high price being offered, in the article they mention $14 dollars per BTU which is already less than what Japan pays, however, even at that price the burden is too high for average Indian incomes...after all, their median income is $1219 dollars per year, how much could they realistically afford to pay for electricity?....Anyone wanting the Indian LNG market is going to have to go low, really low, and that will drive the entire Asian LNG price structure lower....And of course, energy companies and exporting nations could easily say...Sell India nothing...Well, the future growth in LNG usage is predicated on Indian demand, if you cut-out the Indian portion of of the LNG growth forecast the growth in LNG will be flat, and you will have even more over-production, ...Think about this scenario, a glut of LNG availability and a glut of now cheap coal, anyone trying to put another country over an energy barrel will find coal, will find cheap coal as an obstacle..

What is happening here in Canada and the USA, domestic use of coal is falling, and the price of coal is falling, exports of coal have taken up some of the slack, however, countries like India will be the first to embrace cheap/cheaper coal as a power/energy supply...India has their eyes on the North American Henry Hub LNG price....Christy Clark can spin it all she wants, India is a poor country, they can`t afford expensive LNG, not today, not tomorrow not in 5 years....Coal is abundant around the world, the more countries that embrace LNG the more availability of cheap coal, those scenarios go hand in hand..

 I mentioned predicted growth in LNG....Here are the numbers..

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Lay of the land

Natural gas is an interesting creature. Unlike its other commodity cousins oil and coal, moving natural gas from one place to another is exceedingly difficult. The process to liquefy and transport natural gas makes means that prices can vary wildly based on geographic location. That's why so many companies are looking to take advantage of this situation.....

 

At the same time, the market for natural gas exporting is poised to become a very competitive space. According to Wolfgang Moehler at IHS,...

  there is a need for 60 million to 80 million tons of additional LNG capacity between now and 2020, but there are proposals for 250 million tons of LNG export capacity in the U.S. alone. What this means is that there are a lot of facilities that will probably never see the light of day. Meaning that companies that want to make major inroads in this market will need to move quickly and have big checkbooks to cover the costs of these expensive projects.


The candidates

Royal Dutch Shell  (NYSE: RDS-A  ) : Of all the publicly traded major oil and gas companies out there, Shell has quite possibly the most expansive existing LNG infrastructure. The company has a working interest in eight existing LNG export terminals located in the Middle East, Nigeria, and Southeast Asia and owns or operates 56 LNG vessels, all combining to export about 20 million tons of LNG per year. This represents about 8.5% of all global LNG trade. 
Going forward, Shell has equity interests in three Australian LNG projects under construction, as well as proposals to build facilities in the U.S. and Canada, which all told would add another 18.5 million tons to its existing export capacity. But probably the biggest wild card for Shell is its floating LNG technology. If its floating facilities can prove to be economical, it could be a major player in some of the emerging natural gas plays such as East Africa, where there is very little existing offshore infrastructure for LNG.

http://www.fool.com/investing/general/2013/08/11/which-company-will-rule-lng-exports.aspx#.UghigZBr1Gc.twitter
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 You see the above picture of all those Australian LNG plants under construction, Papua New Guinea under construction, East Africa, new players in LNG emerging in Israel, in Mozambique...The USA just granted another export permit..

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BG Group of UK awarded non-FTA export permit for Lake Charles project in Louisiana 

The US Energy Department as expected has granted one of the world's main LNG players, BG Group of the UK, authorization for its Lake Charles LNG export project in Louisiana to sell cargoes to countries that do not have a Free Trade Agreement with the US, including Japan and China..

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Let me repeat that, the LNG export market is expected to need another 60 to 80 million tonnes of LNG capacity by 2020 and in the USA alone there are proposals for 250 million export tonnes per year on the books, there is 40 million tonnes coming online in Australia, there are also projects coming online in Papua New Guinea..There is more capacity coming online in Russia, in Qatar, ..And the USA is way ahead of us in Canada, all toll there is about 500 million tonnes coming online by 2020 with a need of maybe 100 million tonnes maximum...a classic case of over supply, ....And if anyone thinks they are going to hold Asia hostage for as Michael Smyth calls..."An inflated Asian price"..

And there is a new wrinkle, as mentioned here, floating LNG terminals...With natural gas pipeline(s) coming to the coast either to Prince Rupert or Kitimat, no longer are any land based facilities even required, with new wave floating LNG terminals ..They merely need to to hook up to a pipeline and start producing LNG, cheaper, mobile and versatile, these type of facilities could move at will, any regime or Government asking for too much they could just leave to greener pastures..
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Floating a New LNG Export Idea

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By Tyler Crowe | More Articles | Save For Later
August 1, 2013 | Comments (0) 

 

Getting natural gas exports to market is difficult, especially for places where energy infrastructure is almost nonexistent. For emerging natural gas plays, such as the one off the coast of Mozambique, it could cost up to $40 billion to get the infrastructure in place to export the commodity. Thanks to some developments by Royal Dutch Shell (NYSE: RDS-A  ) , that number may go way down. 
Shell has been developing a floating LNG terminal that would work with offshore gas exploration, and its first facility is expected to come on line in Australia toward the end of 2016. If this technology were to be used in a place like Mozambique, it could reduce the infrastructure bill by as much as $30 billion. If successful, this could be a big win for both Shell and other natural gas plays around the world..

 http://www.fool.com/investing/general/2013/08/01/floating-a-new-lng-export-idea.aspx

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Let`s wrap this up, Canada isn`t in a race with anybody, Canada is sitting on the sidelines watching other countries develop LNG export facilities, we haven`t a shovel in the ground or a commitment to put one in the ground...We have no energy selling contracts with Asia in place, those negotiations are stalled pending lower prices...There is a glut of LNG coming online, there is more available LNG for sale than there is customers..

Michael Smyth`s LNG article today....Why today, why wasn`t the media critical of these lavish LNG promises before the election...Oh I forgot, Palmer, Smith, Baldrey and Good are always critical of the BC Liberals 3 out of every 4 years!

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