Sunday, November 17, 2013

Christy Clark`s Preposterous LNG Fantasy, Equity Partner Edition

Earlier this year Petronas, the Malaysian Government`s state owned energy company surprised Stephen Harper and definitely caught him off guard when they announced this......


"Malaysia's state oil firm Petronas plans to spend $35 billion to develop shale gas assets in Canada and build a liquefied natural gas(LNG) export terminal linking the country to energy hungry Asian markets, company officials said.
The estimate is $15 billion higher than the figure previously announced, since it includes costs associated with drilling wells in British Columbia and taking over Canadian explorer Progress Energy Resources for $5 billion, they said.
Malaysian Prime Minister Najib Razak was quoted as saying in newspapers that the project, announced last year after Petronas bought Progress Energy, would make the Southeast Asian country the biggest foreign investor in Canada.
"There is a 30-year timeline for the $35 billion investment," Najib said after holding bilateral meetings with Canadian Prime Minister Stephen Harper on Sunday.
Petronas had previously said it would spend $20 billion to build two LNG trains, which super chill gas into liquid form, on the West Coast. This includes a pipeline to be built by TransCanada Corp from the fields in the shale-rich Montney region. The trains are expected to be ready by the end of 2018 or 2019.
A final investment decision on the entire project will be taken by the end of 2014, Petronas has said.

The firm is in talks to sell stakes in the entire project to potential LNG buyers and has finalised one such deal with Japan Petroleum Exploration Co."
Yes that is a big number, a confusing number because...If Petronas builds an LNG plant, the pipeline from Northeast B.C. to Prince Rupert is pegged at a $5 billion dollar cost and the actual LNG plant if built is being pegged at an $11 billion dollar cost, for a grand total of $16 billion dollars, a large figure never the less..
 The remaining monies, to reach the $35 billion dollars..
 "There is a 30-year timeline for the $35 billion investment,"...
And monies for taking over/buying out Canadian companies(like Progress Energy, which Petronas bought for $5 billion) is part of that total, so in reality they are not spending $35 billion dollars in Canada, taking over Canadian companies is not investment, that is merely changing the name on the ownership title ...
I have written before about my concerns with British Columbia dealing with Petronas and other Government owned energy companies, others like CONOC (Chinese Offshore National Oil Company), the reason I`m concerned is, these are not private companies that sell product to other countries, other customers, CONOC and Petronas if they build LNG plants will be selling LNG to themselves..
Petronas is the Malaysian Government, the Malaysian Government provides natural gas to their own population....a population with an average median income of about $12,000.00 per other words, your average Malaysian can`t afford to pay what Canadians or Japanese pay for energy.
You may be wondering why I`m bringing up this issue..
As has been stated on this site and others, when a company owns the gas in the ground in northeast B.C. (Montney basin), from the wellhead to the pipeline(Petronas will own the pipeline too)...Petronas owns the LNG plant, and Petronas has its own domestic customers, the not too wealthy Malaysian populous, when a state owned Government company owns every end of the natural gas curve, and British Columbia is proposing a new natural gas royalty tax structure on a sliding scale,(from what I have read)..This sliding scale will be structured like this..
If the natural gas(LNG) is sold at a high-world price the tax/royalty will be higher, if the gas is sold at a lower price the tax/royalty is lower, Christy Clark and Rich Coleman have made the claim that BC`s taxation and royalty scheme will be the most competitive scheme in the world, to me, that sounds like we are giving it(natural gas resource)away on the cheap and..
And it also opens up the taxation and royalty scheme to fraud, or guile, deception if you like, call it what you want, there is incentive for an energy company to sell gas cheaply, the cheaper they sell LNG the less British Columbia taxation will be paid..
That is my concern with dealing with foreign country state-owned energy companies..
Anyone of those countries can make the claim that they are selling B.C. gas domestically back in their homeland very cheaply, how do you prove any different?
After-all, energy companies are so trustworthy and they would never manipulate prices, that`s why the price at the pump is the same for every energy company, competition, competition energy company style.
I read another article today on Petronas, it was posted in the Globe and Mail, but before we go there..suppose you had money, money to invest, and you bought 20% of a new restaurant build, or 20% of a new saw mill build, and as part of the sales agreement....As part of that agreement you must buy food at the restaurant, or that you must buy lumber from the saw mill..The sales agreement states that you, the equity owner must be a customer.

So here`s the deal, you put up front money(a portion of the build cost) and you now own an equity share in the company, and you are going to be one of the company`s customers...
Do you really think you, as an equity owner, an owner who put up money to get the business built, do you believe that you would be paying retail or wholesale for the product, in this case, for natural gas?
You would get a better price, you would have to, as there are many restaurants, many saw mills and LNG export plants, Australia has a boodle of LNG export plants built and many more well underway in terms of construction that are soon to be online, meaning these equity investors are going to be getting a better price on natural gas or why become an equity partner, if you weren`t offered a better price why would you invest..
Petronas, there is something about their proposal and plan to build in B.C . that has me very worried, the Georgia Straight published an article last week, an article written by a very astute follower of the energy game, in that article it was spelled out clearly that Petronas right now is in a financial bind...That article linked here..
And when one puts 2 and two together it makes sense, Petronas IS in a financial bind..

Petronas, they can`t afford to not make alot of money, the Malaysian Government, the country of Malasia, the Government that runs Malaysia receives nearly 50% of their entire yearly budget from the one company known as Petronas, in other words Petronas can`t afford to have a bad year or make bad deals, the entire population of Malaysia, a populous whom is not that wealthy depends on Petronas to deliver profits to Government as they are one of the same..

I mentioned an article in the Globe n Mail on Petronas...You see, remember how I started this article, the mention of Petronas surprising Stephen Harper by  Petronas stating they were going to spend $36 billion dollars in Canada..that doesn`t sound like a company with money issues, but once you read the Globe n Mail article the real story becomes as clear as day..

 "Malaysia’s Petronas is lining up Asian energy players to help build a Canadian liquefied natural gas megaproject, but there is a catch. Before anyone joins the ownership team, the prospective partners must sign long-term contracts to buy LNG.

The state-owned energy giant is optimistic that it will find partners eager to participate in the massive development planned by Petronas-led Pacific NorthWest LNG LP. Petronas has a 90-per-cent stake in Pacific NorthWest, while Japan Petroleum Exploration holds a 10-per-cent interest.

A condition of becoming a co-owner is to agree to take delivery of LNG in Asia.

 “When you look at our project, our partners will be fully integrated and have a physical need for LNG,” Pacific NorthWest president Greg Kist said in an interview.
All of our LNG volumes will be committed to partners who will buy their proportion, and that creates an alignment of interests.”
Pacific NorthWest selected TransCanada Corp. earlier this year to design and build a pipeline stretching across 900 kilometres. That $5-billion pipeline, called the Prince Rupert Gas Transmission Project, would carry natural gas to Lelu Island, which will be transformed into an $11-billion LNG export terminal.
 Mr. Kist said his project is well-positioned, but “there are lots of horses in the race.”
Pacific NorthWest expects to receive a decision by the end of this year on its application for an LNG export licence from the National Energy Board. Mr. Kist said Petronas, Japex and whatever future partners there might be will make a final investment decision in late 2014 on whether to proceed with the LNG project.
Pacific NorthWest estimates it will require 3,500 construction workers at the peak of the project’s development, while up to 300 permanent employees would be needed, starting in early 2019, to run the export terminal on Lelu Island.

 Well, that`s a mouthful of gobbily goop, let`s break that down into digestible bites.

If this is all so lucrative, as Christy Clark calls it....and I quote.."A $trillion dollar industry"..
Why does Petronas need financial help to build, they blathered about spending $36 billion over 35 year in Canada and they can`t come up with $16 billion for pipeline and plant..
Also, Petronas clearly states that each equity partner will take their allotment of LNG, meaning there won`t be any lucrative contracts signed with OTHER BUYERS, the gas is all accounted for, and what price might these equity partners be paying, the same price as Petronas is paying one would suspect meaning the Asian price premium, the current price differential between North America and Asia is absolutely meaningless..It will be to the advantage of each equity partner to pay as little as possible for the gas, and to the detriment of British Columbia`s finances, the Christy Clark $trillion dollar fantasy is all but toast with Petronas..
There is much more between and on the lines in that Globe n Mail article..
Petronas is still 2 years away from even deciding to go-ahead with the project and even if they do, if this whole LNG fantasy doesn`t collapse before then...Completion providing everything is on time, is not until 2019 to 2020..
7 years away from now, and Petronas is described in that article as the leading proposal, the furthest along..Meaning we BCers will be old and grey before we see a dime, ...Christy Clark has suggested our sales tax will be eliminated with LNG revenue, our staggering BC debt paid off, all crown debt, tolls eliminated, ferry fares slashed, and we can`t forget her promise of $100 billion dollars in a prosperity fund for future generations, oh, don`t forget about Christy Clark`s suggestion that LNG will create over 100,000 jobs in British Columbia..

But look, I have already written that LNG plants employ very few, right from the horse`s mouth..
"estimates it will require 3,500 construction workers at the peak of the project’s development, while up to 300 permanent employees would be needed, starting in early 2019, to run the export terminal on Lelu Island."
You see that, 3500 employees during peak construction, so slice that number in half....And maybe up to 300 permanent employees to run the LNG plant, slice that number by a third..200 employees to run an LNG plant..
 Let me be clear, we won`t have 10 LNG plants in B.C...but even if we did, how many permanent LNG plant jobs would that be??..Answer, a couple of thousand, like 2000 to 2500, where are all the other 100,000 LNG jobs Christy Clark promised going to be...We they all be drilling holes and fraccing?
And to finish this off....I don`t know how much natural gas frackers make per year, all those 100,000 fraccing workers , but let`s say all total,  taxes and benefits..100,000 gas frackes all making $100,000.00 per year before taxes, that wage amount totals a staggering $10 billion dollars per year..
Gee whiz, all those Petronas equity partners, if they actually find any are sure going to be paying through their nose for natural gas, wages, our debt, a future prosperity fund, crown debt and tolls, not to mention schools and hospitals....and the money will Start rolling in 2020, a mere 7 years from now..
Like I said, this BC Liberal Christy Clark LNG fantasy they foisted on the electorate, a scheme the media gave Christy Clark a free pass on is..
 The Straight Goods
Cheers Eyes Wide Open


Anonymous said...

You sir are like crazy insane, and we luv it!!


Hugh said...

I thought the Federal Govt is not allowing any more large investments by foreign state-owned companies?

Thanks for writing about this issue.

Hugh said...

Another thing is that both Canada and Malaysia are possibly in the TPP agreement.

From Wiki TPP:

"The leaked draft (TPP) treaty also contains Investor-state dispute settlement, which permits foreign investors who made an investment in the territory of a Party in accordance with its laws to submit a claim to arbitration under the arbitral rules of either International Centre for Settlement of Investment Disputes or United Nations Commission on International Trade Law."

Anonymous said...

Brilliant! cluck cluck and Coleman are selling us out, keep foot on liberals throat Grant.


Grant G said...

Hugh...There are issues surrounding the TPP, and that conversation needs to happen..

However, the issue, the premise..The theme of this article..

The BC Liberals taxation and royalty scheme is doomed, ...I mean our revenues expected are doomed under their plan.

If any LNG plants are built...

British Columbia must have a flat rate based on volume, X amount of dollars must be payable to the province per BTU..

That is the only way it will work, no grey areas..

With Petronas....we`re hooper.