LNG Premium Price Downward Spiral, The Perfect Storm For Asian Energy Buyers

Written by Grant G


Christy Clark and the BC Liberals entire 2013 platform was based on unrealistic LNG future revenues, the debt to be eliminated, sales tax to be shelved, bridge tolls removed, BC Ferries and BC Hydro debts eliminated as well as a promised prosperity fund worth $hundreds of billions of dollars for future generations.

It`s time for the media, the mainstream media to do a little bit of the heavy lifting and start actually reporting the new reality of LNG pricing, why is this task left to a handful of online writers and bloggers, it`s not that I mind breaking virgin ground on the topic but more importantly the people of British Columbia deserve the truth, future generations and uneducated voters deserve the Straight Goods on the topic.

Back in 2006 through 2008 when Henry Hub LNG prices were over $12 dollars per unit the American energy companies ramped up and built, or should I say started to build many LNG import terminals, 10`s of $billions were spent in anticipation of the USA weaning off of coal and moving towards natural gas to power electrical generating stations...That was the reality of that time in history, but before any of those import facilities came online the market changed, fracking technology, the genie was released from the bottle, in other words, America realized that they are awash in natural gas, so much so that those import facilities were scrapped and now America is on the verge of being not only energy self sufficient but actually being a energy exporting power to be reckoned with....

Just think of that implication, countries like Qatar, Australia, and even Canada were planning on filling America`s LNG needs, that need is now gone, the world`s largest market for energy literally overnight dashed the wet dreams of the world`s largest energy companies.

The price of North America natural gas crashed to historic lows, it also sent reverberations through a monster in size coal industry, for now both the price and demand for coal in America fizzled, meanwhile...

Meanwhile countries like Australia had already started building massive LNG export facilities, two plants come online this year with three more LNG export plants coming online in 2014, yet the emerging north America market for LNG had evaporated before it even started, all of a sudden LNG export companies had to rethink their strategy, all eyes were now focusing on Asia and the premium price they were prepared to pay, Russia, who had the lion`s share of the Chinese market and most of Europe spotted this trend and quickly moved to increase pipeline capacity directly into China, and they weren`t alone, Kazakhstan who are sitting on massive reserves of gas punched a pipeline into China as well, these countries were wanting to protect and be first into China with ample long-term supply...

Russia`s largest energy company Gazprom was notorious for ruthless tactics in Europe, they demanded ultra high prices for gas, any countries who balked at paying the premium quickly found the gas supply shut off, literally freezing entire nations resulting in death, many many deaths, Gazprom was literally sitting in cat-bird seat, as they had the only supply, that too is changing, and changing rapidly, Vladimir Putin, Russia`s leader had/has a goal of being the world`s largest energy provider, however a monkey wrench was tossed into the mix, countries like Norway soon discovered that they were sitting on vast reserves of accessible gas too, they offered Europe discounts of 20% or more, Gazprom, Russia`s largest exporting energy company found its exports in decline, this decline in exports angered Vladimir Putin to no end, as Russia was taking some skim from all sales, with sales declining Russia`s income was in decline, Gazprom was literally ordered to lower the price of gas for its European customers, Gazprom balked at reducing their share to please the state...Industry experts from other energy companies started laughing at Gazprom`s take-it-or-leave-it conditions, with new supplies coming online around the world and including European countries which were customers of Gazprom..Poland for example, a country that has seen the wrath of Gazprom when there were cut off of natural gas for balking at the price has vowed to never be under the thumb of Gazprom again, and have now invested $billions of dollars to develop their own newly discovered vast reserves of shale gas, now easily accessible through the out of the genie`s bottle fracking technology..

Gazprom finally stood up and took notice, most European countries are now getting 20% to 30% discounts on the premium prices of the past..

I could list a hundred massive new gas discoveries around the world..East Africa has discovered vast reserves, Mozambique river basin has a hundred plus years of supply, Australia who have had near $200 billion spent in LNG export facilities, and they have vast reserves available to supply these plants, another $100 billion is being spent on floating LNG facilities for use in Australia...Russia has discovered even more large gas reserves in Siberia, muskeg gas, reserves even larger than Northeast BC gas reserves..I mentioned Poland, the east coast of Canada is looking to develop their vast natural gas reserves too, America is awash in gas, and now Japan and Korea have discovered how to extract ocean hydrates, a brand new form of gas energy, hundreds of years of supply..Korea has balked and torn up MOU`s deals for buying Australian gas at premium prices, two large long-term energy buying deals have been struck with American firms to supply Japan with LNG, prices now linked to the north America Henry Hub price, not the Asian premium price...China also, they have discovered they possess over 300 years of supply of domestic natural gas...And China, China is going full-blow nuclear as well, by 2020 over 25 nuclear/electrical generating plants are coming online and another 42 nuclear plants to come online by 2030..New cleaner nuke facilities, facilities that create no nuclear waste, China`s LNG demand will not utilize the world`s supply..

And there is another factor in play, coal burning, cleaner burning coal with new scrubbing technology, with the world accessing new found LNG supplies, the price for coal has fallen, putting many coal companies out of business, and for some, the glut of natural gas around the world has forced coal producers to sharpen their pens, to lower their prices....

This too affects the LNG pricing premium, or lack thereof, for anyone thinking they can hold China and Korea hostage for premium priced LNG are in for a rude awakening, these countries will simply resort to using coal, using cheap coal...For none of these coal companies are prepared to surrender their industry without a fight, all this action is creating a perfect storm for energy buyers..A storm of cheap abundant energy resources...

We have world demand for oil falling, China is in a slowdown, Europe is in long-term recessionary mode, Canada and America have flat wages and rising consumer debt, world forecasts are for slow growth..Any spike in energy costs with merely aggravate the slowdown..As many wise people have said, without consumer buying power who will buy the goodies corporations produce, a catch 22 situation, outsourcing to third world cheap labour countries, products produced on the cheap, more and more wage levels in the western developed countries are falling, not rising but falling as the corporate screws cry productivity woes, code talk for wages are too high, yet wages in China or India, Vietnam and or Korea won`t afford consumers there to buy $5 dollar Starbuck`s coffee or $500 dollar iphones, those Asian and Indian wages won`t drive air traffic or custom made tailored suits, the race to the bottom continues.

Corporations may be able to sell hundreds of millions of units of goods in China or India but at what price, yes I`m talking about economies of scales, selling 20 million units at $500 dollars each or sell 200 million units at $50 dollars each....You end with the same dollar value only corporations will have to produce 10 fold the product, 10 fold the labour, 10 fold the materials required to produce..This scenario is rapidly approaching, and the corporate mindset still hasn`t figured it out, Canada`s fraudulent temporary foreign worker program is a glaring symptom of this emerging corporatism disease..

Meanwhile our 2013 BC election was fought with false propaganda that our local media ignored..Our debt, deficits, tolls, taxes and entire future depends on the false assumption that the BC Liberals foisted on the mentally weak..

Christy Clark answered every question with LNG $trillions..And, we are in a global world, utterances blathered by Canadian politicians are indeed heard around the world, what do you think China and Japan feel like, at every turn Christy Clark called these grand nations marks, like a three-card-monty dealer, Christy Clark told British Columbia voters that British Columbia, who at this time has no LNG industry, no shovels in the ground, no decisions made to even build a plant, Christy Clark told all that little old British Columbia are going to lift Japan and China up by the ankles and shake these countries down for decades to come, shake then down for every coin in their pockets when there is a worldwide energy glut and slowdown..

All the while our British Columbia media wandered around with hands in pockets looking at the floor, no questions asked, no answers received, if Christy Clark said white is black and up is down, good enough for our media..

Anywho, rather than giving you some cut n paste I`ll let you peruse the links..I`ll put them in order of importance..

This link talks about $60 billion dollars in energy buying contracts shelved.

http://www.theaustralian.com.au/business/mining-energy/lng-costs-in-focus-as-60bn-gas-deals-shelved/story-e6frg9df-1226652612279

This link is about another energy buying deal struck between Japan and the USA, a deal linked to the Henry Hub price ...

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http://www.ft.com/intl/cms/s/0/e776f43c-70fd-11e2-9d5c-00144feab49a.html#axzz2Ubbgl615

Japan’s Tepco signs gas deal with US

By Jonathan Soble in Tokyo and Ed Crooks in New York

Japan’s largest gas consumer has signed a deal to buy liquefied natural gas from the US, as the shale revolution that has transformed the North American energy industry begins to shake up other regions.
Tokyo Electric Power, Japan’s largest utility, has agreed a supply contract starting in 2017 with Cameron LNG, a proposed export project in Louisiana backed by Sempra Energy of the US, Mitsui and Mitsubishi of Japan, and GDF Suez of France.

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This next link is all about Gazprom, Russia`s largest energy exporting company being forced to lower their prices, it`s a long read but very informative..

http://www.marketoracle.co.uk/Article40241.html


This next link is about Japan`s newest energy discoveries, ocean hydrates..


http://www.nytimes.com/2013/03/13/business/global/japan-says-it-is-first-to-tap-methane-hydrate-deposit.html?pagewanted=1&_r=2&ref=offshoredrillingandexploration&adxnnlx=1368810826-qinBavfpmX719FH4mps63Q&

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http://www.businessspectator.com.au/news/2013/4/2/resources-and-energy/fitch-outlook-bleak-australian-lng

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It`s time BC`s media got off their fat lazy asses and did some actual work, whether or not any BC LNG export plants get built is secondary to the debate, two things are very apparent, the jobs associated with LNG export plants advertised and promoted during our 2013 election is pure myth, the job numbers are utter bullshit..And historically, Natural gas has always been a very tiny employer in British Columbia..

http://www.huffingtonpost.ca/sandy-garossino/lng-jobs-economy_b_3263681.html

Secondly, Christy Clark proposed hoisting up China and Japan by their ankles and shaking them down for old-outdated historic high prices for LNG, those proposed monetary promises will never accrue at the levels advertised...Especially when the Australian Government has massive taxpayer subsidies for energy companies, they can write off all their capital expenses in 7 years, in BC, it will take Canadian LNG companies 27 years to attain that, meaning we are not only years behind the competition we are also not competitive, Australia will be able to deliver LNG cheaper..The Harper Government said flat-out no to capital tax breaks for BC LNG companies..

http://www.vancouversun.com/news/Finance+Minister+Flaherty+nixes+request+break+help+liquefied+natural+industry/8133958/story.html#ixzz2UYkgu4cg

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Time for the media to ask some hard questions, and maybe even a follow-up question or two..

Sheesh


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