LNG Spin Zone Unraveled, Uncomfortable Facts

Corporate spin, bluster of the bullish, is anything real, what can be believed, just like the never-ending petroleum industry ads on Suns News of pristine environments, clean flowing waters and a harmonious blissful arrangement between mother nature and tar oil goop extractors..

At times I feel the BC Government orders up press releases to directly counter articles posted at The Straight Goods, at least when it comes to LNG, .....Recently the esteemed Andrew Weaver has perused these articles and agreed with the analysis coming from this site, Andrew Weaver featured on CTV(tonight, June 11th) And being listened to by other media on the topic,  I feel that was the catalyst for the latest press release from Petronas highlighted by The Vancouver Sun...

There was an article yesterday where the CEO of Petronas stated that the idea of cheap LNG is a "fallacy"...

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"The notion of cheap LNG is a fallacy,” Shamsul Azhar Abbas, Petronas’s president and chief executive officer, said at the Asia Oil & Gas Conference in Kuala Lumpur yesterday. “Energy users need to understand that energy security requires a premium to allow re-investments.” 

 http://www.businessweek.com/news/2013-06-10/lng-boom-no-comfort-to-asia-as-petronas-sees-cheap-gas-fallacy

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Alright,  that statement from Petronas was not only expected, but typical, an oil company executive being bullish on the future of LNG...What would any energy company executive say, ...That the market was in flux, LNG pricing in Asia is in free-fall, of course not, every energy company executive in the world is bullish on price premiums for energy, unfortunately that is not the reality...A glut of supply is coming online around the world, prices are already falling in Asia, energy buying contracts are hard to come by, and there are many X factors in the mix as well, first with Japan...

After the Fukushima disaster the world and Japan thought nuclear power would be phased out...Sober second thoughts, actually domestic Japanese fiscal thoughts are pushing towards a complete restart of all Japanese nuclear facilities, and more, as written here, Japan and South Korea are going headlong into trying to develop ocean hydrates, one of the newest and most abundant energy sources in the world, hundreds and hundreds of years of gas supplies underneath Japan`s oceans, Petronas`s CEO can spout whatever rhetoric he likes, if Japan is successful in developing this energy source the world LNG trade will be thrown on it`s ear...

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"News that Japan has become the world's first country to successfully extract gas from a deposit of methane hydrates buried beneath the sea poses a threat to Australia's massive liquefied natural gas (LNG) export industry, according to The Australian.
Japan's Ministry of Economy, Trade and Industry hopes to begin commercial extraction from the methane hydrate fields within five years, which could prove to be a game-changer for the global gas sector that has come to pursue and rely on strong gas prices and robust demand from Japan.
The prospect of a decline in LNG demand from Japan could threaten Australia's $175 billion worth of LNG development plans.

Japan has been seeking means to reduce its reliance on LNG imports from Australia and elsewhere.

Currently, Japan buys 70 per cent of Australia's entire LNG exports, which were worth $11 billion in total in 2010/11, with forecasts of rising to $30 billion by 2016/17, The Australian reported.

Forecaster Wood Mackenzie warned that if Japanese methane hydrate production is achieved by 2018 it would result in a fall in gas imports that would “severely disrupt the global LNG market, and question the viability of projects in Australia, Malaysia and Papua New Guinea”, the newspaper added."

 http://www.businessspectator.com.au/news/2013/3/14/industries/japanese-gas-extraction-threatens-australian-lng-outlook

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Petronas can stomp their feet and claim whatever they want, the bottom line is, Japan will tread very carefully with signing any energy buying deals until this new energy source is fully explored, with Japan in a decades long financial slump, with Japan seeing the prospect of eliminating $11 to $50 billion in yearly energy imports, the incentives are very strong for Japan, financial and energy security are very strong incentives for pursuing this energy source, indeed... ..

And we have China, the world`s second largest economy sitting on 55 trillion cubic meters of domestic natural gas deposits, why these energy companies believe it will take decades for China to develop internal supplies is a mystery, for China now leads the world in export wares of everything, of electronics, housewares, shoes, China if it puts their mind to something can achieve progress at levels unattainable in the western world, no pesky environmental reviews, no domestic populations with clout to stand in the way...

China is also in the midst of a massive domestic slowdown, high unemployment, millions of highly educated graduates that can`t even get factory jobs, China is under big-time domestic pressure to create jobs, create jobs at home..What do jobs have to do with LNG, that answer is very simple, China has an estimated..

An estimated 5 million people work in China's coal-mining industry. As many as 20,000 miners die in accidents each year(source, Wikipedia)

If the world`s energy companies think and or believe China will shed millions of jobs, if energy companies believe China will fully embrace LNG as a replacement for coal and thrust millions of workers to already extensive Chinese unemployment lines are dreaming, to believe China will add to their unemployment numbers while simultaneously expending $billions of domestic dollars to foreign energy companies are delusional, coal workers in China will be transformed into natural gas extractors..especially considering China is sitting on the largest natural gas deposits in the world..


China has recently discovered hundreds of years of supply of domestic natural gas, in mainland China..Check out page 6 of the below PDF file, China has an estimated 55 TCM...That would be 55 Trillion Cubic Meters of natural gas...Enough natural gas to supply themselves for 400 years..

http://www.iea.org/publications/freepublications/publication/nat_gas_china.pdf

Where was I, there was a bold headline in the Vancouver sun today,

 "Petronas expects to invest up to $16 billion in LNG export facility in B.C."


 http://www.vancouversun.com/business/Malaysias+Petronas+expects+invest+billion+export+facility+Canada/8508638/story.html

I would like you to note the language used in a very thin on detail article...

"expects"

Expect doesn`t mean for sure, no final investment decisions have been made, the article also states that Petronas has its first energy buying customer, again the devil is in the details and language used, the energy buyer is Japex..But Japex isn`t your typical energy buyer, Japex is 40% owned by the Japanese Government and in fact Japex has purchased a 10% equity stake in the Petronas proposed operation, those who buy equity stakes in massive operations are to me not customers but owners of the product, the article in the Vancouver Sun is so thin on details..

Japex, according to the very thin article in the Sun bought 10% of Petronas`s B.C. operation..Transcanada(pipeline company) is going to be the builder, operator and owner of the "proposed" pipeline that will supply feedstock gas for this "proposed" operation..

Well, this "proposed" operation is getting very sticky indeed, first off, with a separate pipeline builder, operator and owner, TransCanada will need not only to pay for this $5 billion dollar pipeline but will need to profit from it..That`s the first set of fingers digging into this particular LNG pie...Japex is not really an energy buying customer, they have paid a large sum of money for an equity stake, Japex is 40% owned by the Japanese Government, is the Japanese Government going to both help finance a project and get raked over the coals and have to, or be forced to pay a huge Asian premium price for LNG, an equity partner paying the full shot, no discount?...

I hardly think so...And we are just getting started...Petronas, most of the BC public doesn`t know who Petronas is, they are not your typical energy company, they aren`t Chevron or Shell or Exxon Mobile, Petronas is not a private company, Petronas is in fact the Malaysian Government, it is a National State owned Government operation..In fact the Malaysian Government gets near 50% of its budget from profits and dividends of it`s state owned company....The Vancouver Sun article didn`t bother telling the B.C. public of any of those important facts..

 http://www.vancouversun.com/business/Malaysias+Petronas+expects+invest+billion+export+facility+Canada/8508638/story.html

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PETRONAS, short for Petroliam Nasional Berhad, is a Malaysian oil and gas company that was founded on August 17, 1974. Wholly owned by the Government of Malaysia, the corporation is vested with the entire oil and gas resources in Malaysia and is entrusted with the responsibility of developing and adding value to these resources. PETRONAS is ranked among Fortune Global 500's largest corporations in the world.

 Fortune ranks PETRONAS as the 68th largest company in the world in 2012. It also ranks PETRONAS as the 12th most profitable company in the world and the most profitable in Asia.^[1][2][3]
Since its incorporation, PETRONAS has grown to be an integrated international oil and gas company with business interests in 35 countries. As of the end of March 2005, the PETRONAS Group comprised 103 wholly owned subsidiaries, 19 partly owned outfits and 57 associated companies. Together, these companies make the PETRONAS Group, which is involved in various oil and gas based activities. The Financial Times has identified PETRONAS as one of the "new seven sisters":^[4] the most influential and mainly state-owned national oil and gas companies from countries outside the OECD.

The group is engaged in a wide spectrum of petroleum activities, including upstream exploration and production of oil and gas to downstream oil refining; marketing and distribution of petroleum products; trading; gas processing and liquefaction; gas transmission pipeline network operations; marketing of liquefied natural gas; petrochemical manufacturing and marketing; shipping; automotive engineering; and property investment.


Petronas provides a substantial source of income for the Malaysian government, with 45% of the government's budget dependent on Petronas' dividend, moreover in 2011 government actual balance has 5 percent deficit of Gross Domestic Product.<sup>[5]


 http://en.wikipedia.org/wiki/Petronas


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Petronas, let us be perfectly clear, Petronas has their own Malaysian domestic customers trapped, as a Government entity the people of Malaysia have no choice but to rely on Petronas for natural gas, so the company is safe that way, and as a state company that provides near 50% of the entire budget of  the Malaysian Government of course they are bullish on natural gas and LNG, but that doesn`t make it true, they, Petronas and Malaysia have no other options, without a profitable Petronas the Malaysian Government is in big trouble, thus Petronas and their CEOs have no choice but to be bullish on LNG...

Now, let me clarify my position, I have never said nothing will get built in British Columbia, I have said that our province will never realize the profits and financial numbers Christy Clark and the BC Liberals have bandied about..

Christy Clark has stated that LNG exports will....Eliminate our $100 billion dollar plus debt, eliminate BC Hydro debt, eliminate BC Ferry debt, eliminate tolls, eliminate sales tax and fund more monies for healthcare, for education and $hundreds of billions in a prosperity fund for future generations...

Well, let me say this, the Malaysian Government is depending on its future well-being from Petronas profits, Japex is not a customer but an equity partner, they certainly won`t want to be the one paying the large Asian premium, not as an equity partner, Transcanada, the pipeline company chosen to build this "proposed" transmission network are not a one-time contractor, they are taking on the build cost in anticipation of not only paying for the cost of construction but ongoing profits..

Let`s run through that again...Japex has become an equity partner in this "proposed" project in anticipation of cut-rate LNG prices....Transcanada is not a contracted one-time builder but is taking on the cost of a pipeline network in anticipation of monies returned and ongoing profits...Petronas needs to pay for the LNG plant build costs, and achieve ongoing profits not just for CEOs and shareholders but the Malaysian Government itself, Malaysia relies almost solely on big profits from Petronas to run their country, is Malaysia prepared to share profits with Christy Clark?

I see many fingers in this Petronas pie, along with Christy Clark who has suggested taking massive profits from this not-up-and-running fledgling industry too, Clark touted a new LNG tax..

Now, we have all that Australian capacity coming online, how much profit will there be, how long will China and Japan be raked over the coals...When push comes to shove and if the big $dollars are not realized in these projects who will get the shaft?...My guess it will be the B.C Government, not those who put up investment dollars..

Anywho, the other day I mentioned rumours swirling around about cheap abundant Canadian gas being piped south or north as feedstock gas supplies, in my opinion, for what it`s worth, the only reason this would be a consideration is if those who own the drilling rights in northeast British Columbia don`t believe there will be 6 to 10 LNG plants built in B.C....

There is a company in Oregon who has applied for regulatory approval to pipe natural gas from northeast BC to Oregon, this gas to be used as feedstock for thier proposed operation, this Oregon company has a two-fold plan, a very prudent plan, they want the feedstock natural gas for two reasons, the first one is for domestic natural gas users in the USA northwest coastal area, isolated marine communities and for anticipated demand as more and more commercial transportation outfits switch to natural gas powered trucking..And, and for possible liquification to LNG for export..

The reason why this proposal from Oregon is smart is because their primary goal, their primary income will come from domestic sales, not exporting LNG..

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"Oregon LNG, one of two US export project in the US Northwest, said it filed an application with the Federal Energy Regulatory Commission seeking the necessary approvals and also planned to export pipeline gas from Canada as LNG cargoes.

The Oregon LNG project, which plans to invest an initial $6.3 billion, is based in the town of Warrenton and will compete with the nearby and further advanced Jordan Cove LNG project.

The Oregon project, being developed by Leucadia National Corp., a holding company listed on the New York Stock Exchange, plans to construct and operate a bi-directional LNG terminal with both import and export capability.
The venture will also include an affiliated interstate natural gas pipeline that will interconnect with and bolster the capacity of existing pipeline facilities, and would enable the shipment of natural gas produced in Canada and already earmarked for export.

The project will directly compete for cheap pipeline gas with half-a-dozen Canadian LNG export projects being developed across the border, north of Vancouver, and on the Atlantic coast of Nova Scotia.

"In addition to facilitating the delivery of natural gas supplies to isolated coastal communities as well as trading partners worldwide, the bi-directional project would also support the emerging conversion to cleaner burning natural gas for trucks, railroads, barges, ferries, and ocean going vessels," Oregon LNG said."

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Well, what the above article suggests to me is that this company already has gas drillers in British Columbia prepared to sell them feedstock gas, why would that be, because most don`t expect all the LNG plants Christy Clark has mused about to be built, that`s my opinion..This Oregon operation isn`t dependent on the vagaries of Asia, the vagaries of ocean hydrates, it doesn`t rely on Japan, or China, it doesn`t have to worry about all that Australian supply coming online, their main market is domestic and isolated coastal communities..

Anywho, the Vancouver Sun article is very thin, more deceptive than anything else, there is one really big question, can we trust Petronas, can we trust a Malaysian Government that depends on Petronas for monies to run their country, is Malaysia prepared to share the wealth with the BC Government, will the wealth be there for so many fingers in one pie, and for how long, if profit margins get slashed who will go without..The Malaysian Government and by extension the Malaysian people?..The BC Government? Transcanada?..Who will take less, or nothing?

Christy Clark has promised roughly $20 billion dollars per year in monies, in profits from LNG flowing to provincial coffers, Christy Clark has promised this largesse for decades to come...Ahem..!

If Japan develops ocean hydrates the LNG market crashes, if China moves displaced coal-workers into domestic natural extraction the LNG market crashes, the LNG market may well crash just with the under construction facilities in Australia and east Africa coming online, coming online years before anything is built in B.C....

In fact, despite the deceptive headline in the Vancouver Sun, despite the bluster from the CEO of the Malaysian Government entity Petronas, Petronas stated that they will make a final investment decision by late 2014...

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 ”Mr. Kist said. Petronas hopes to make a final investment decision by late 2014, and begin exports by 2018.

However, many observers expect only a minority of planned LNG projects to be built. Those interested in the Prince Rupert area, like Petronas, face First Nations hurdles, with numerous overlapping claims to federal port lands there. Cost and complexity are also major issues in designing facilities that could cost tens of billions of dollars. Australia’s booming LNG industry has seen enormous cost overruns, for example."

 http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/petronas-launches-engineering-work-for-bc-lng-project/article12048767/

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And Christy Clark has stated through her jobs plan, and repeated in the below Vancouver Sun linked story...And I quote..

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"Clark`s jobs plan has forecast one pipeline and LNG terminal in operation by 2015 and three others up and running by 2020"


http://www.vancouversun.com/business/Malaysias+Petronas+expects+invest+billion+export+facility+Canada/8508638/story.html

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Nothing has yet to be finalized or been given the go-ahead to even be built..

That first pipeline and LNG plant, if built will not be up and running by 2015..or 2016...or 2017...maybe 2020, if built at all..

The Straight Goods


Cheers Eyes Wide Open