{"id":64842,"date":"2014-12-07T18:55:19","date_gmt":"2014-12-07T23:55:19","guid":{"rendered":"http:\/\/countingpips.com\/?p=64842"},"modified":"2014-12-07T18:55:19","modified_gmt":"2014-12-07T23:55:19","slug":"russia-and-chinas-natural-gas-deals-are-a-death-knell-for-canadas-lng-ambitions","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/12\/russia-and-chinas-natural-gas-deals-are-a-death-knell-for-canadas-lng-ambitions\/","title":{"rendered":"Russia and China\u2019s Natural Gas Deals Are a Death Knell for Canada\u2019s LNG Ambitions"},"content":{"rendered":"<div id=\"inves-260920065\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">December 7, 2014<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><h4><span style=\"font-size: small;\">By Marin Katusa, Chief Energy Investment Strategist, Casey Research<br \/>\n<\/span><\/h4>\n<p>In recent years, a number of Asian companies have been betting that Canada will be able to export cheap liquefied natural gas (LNG) from its west coast. These big international players include PetroChina, Mitsubishi, CNOOC, and, until December 3, Malaysian state-owned Petronas.<iframe loading=\"lazy\" src=\"http:\/\/trk.caseyresearch.com\/f\/?content_id=1098&amp;code=PIP&amp;editorial=russia-and-chinas-natural-gas-deals-are-a-death-knell-for-canadas-lng-ambit\" width=\"1\" height=\"1\" frameborder=\"0\"><\/iframe><\/p>\n<p>However, that initial interest is decidedly on the wane. In fact, while the British Columbia LNG Alliance is still hopeful that some of the 18 LNG projects that have been proposed will be realized, it\u2019s now looking less and less likely that any of these Canadian LNG consortia will ever make a final investment decision to forge ahead.<\/p>\n<p>That\u2019s thanks to the Colder War\u2014as I explain in detail in my new book of the same name\u2014and the impetus it\u2019s given Vladimir Putin to open up new markets in Asia.<\/p>\n<p>The huge gas export deals that Russia struck with China in May and October\u2014with an agreed-upon price ranging from $8-10 per million British thermal units (mmBtu)\u2014has likely capped investors\u2019 expectations of Chinese natural gas prices at around $10-11 per mmBtu, a level which would make shipping natural gas from Canada to Asia uneconomic.<\/p>\n<p>At these prices, not even British Columbia\u2019s new Liquefied Natural Gas Income Tax Act\u2014which has halved the post-payout tax rate to 3.5% and proposes reducing corporate income tax to 8% from 11%\u2014can make Canadian natural gas globally competitive.<\/p>\n<p>These tax credits are too little, too late, because Canada is years behind Australia, Russia, and Qatar\u2019s gas projects. This means there\u2019s just too much uncertainty about future profit margins to commit the vast amount of capital that will be needed to make Canadian LNG a reality.<\/p><div id=\"inves-301415291\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<p>Sure, there are huge proven reserves of natural gas in Canada. It\u2019s just been <a href=\"http:\/\/www.caseyresearch.com\/go\/uhze9-2\/PIP\" target=\"_blank\">determined that Canada\u2019s Northwest Territories hold 16.4 trillion cubic feet of natural gas reserves<\/a>, 40% more than previous estimates.<\/p>\n<p>But the fact is that Canada will remain a high-cost producer of LNG, and its shipping costs to Asia will be much higher than Russia\u2019s, Australia\u2019s, and Qatar\u2019s. So unless potential buyers in Asia are confident that Henry Hub gas prices will stay below $5, they\u2019re unlikely to commit to long-term contracts for Canadian LNG\u2014or US gas for that matter\u2014because compression and shipping add at least another $6 to the price.<\/p>\n<p>Shell has estimated that its proposed terminal, owned by LNG Canada, will cost $40 billion, not including a $4 billion pipeline. As LNG Canada\u2014whose shareholders include PetroChina, Korea Gas Corp., and Mitsubishi Corp.\u2014admits, it\u2019s not yet sure that the project will be economically viable. Even if it turns out to be, LNG Canada says it won\u2019t make a final investment decision until 2016, after which the facility would take five years to build.<\/p>\n<p>But investors shouldn\u2019t hold their breath. It seems like Korea Gas Corp. has already made up its mind. It\u2019s planning to sell a third of its 15% stake in LNG Canada by the end of this year.<\/p>\n<p>And who can blame it? The industry still doesn\u2019t have clarity on environmental issues, federal taxes, municipal taxes, transfer pricing agreements, or what the First Nations\u2019 cut will be. And these are all major hurdles.<\/p>\n<p>Pipeline permits are also still incomplete. The federal government still hasn\u2019t decided if LNG is a manufacturing or distribution business, which matters because if it rules that it\u2019s a distribution business, permitting is going to be delayed.<\/p>\n<p>And to muddy the picture even further, opposition to gas pipelines and fracking is on the rise in British Columbia and elsewhere in Canada. While fossil fuel projects are under fire from climate alarmists the world over, Canadian environmentalists are also angry that increased tanker traffic through its pristine coastal waters could lead to oil spills.<\/p>\n<p>Canada is now under the sway of radical environmental groups and think tanks like the <a href=\"http:\/\/www.caseyresearch.com\/go\/uhz2a-2\/PIP\" target=\"_blank\">Pierre Elliot Trudeau Foundation<\/a>, which take as a given that Canada should shut down its tar sands industry altogether. For these people, there\u2019s no responsible way to build new fossil fuel infrastructure.<\/p>\n<p>Elsewhere, investors might expect money and jobs to do the talking, but Justin Trudeau\u2019s Liberal Party, which has called for greenhouse gas limits on oil sands, is now leading the conservatives in the polls. (Just out of curiosity, does Trudeau plan on putting a cap on the carbon monoxide concentration from his marijuana agenda? But I digress.) If a liberal government is elected next year, it might adopt a national climate policy that would cripple gas companies and oil companies alike.<\/p>\n<p>Some energy majors are already shying away from Canadian LNG. BG Group announced in October that it\u2019s delaying a decision on its Prince Rupert LNG project until after 2016. And Apache Corp., partnered with Chevron on a Canadian LNG project, is seeking a buyer for its stake.<\/p>\n<p>Not everyone is throwing in the towel. Yet. ExxonMobil\u2014which is in the early planning phase for the West Coast Canada LNG project at Tuck Inlet, located near Prince Rupert in northwestern British Columbia\u2014has just become a member of the British Columbia LNG alliance.<\/p>\n<p>But Petronas was a key player. It was thought that the company would be moving ahead after British Columbia\u2019s Ministry of Environment approved its LNG terminal, along with two pipelines that would feed it.<\/p>\n<p>Instead, Petronas pulled the plug. We can\u2019t know how many things factored into that decision nor whether it\u2019s absolutely final. All the company would say is that projected costs of C$36 billion would need to be reduced before a restart could be considered. (That $36B figure includes Petronas\u2019s 2012 acquisition of Calgary-based gas producer Progress Energy Resources Corp., as well as the C$10 billion proposed terminal, a pipeline, and the cost of drilling wells in BC\u2019s northeast.)<\/p>\n<p>This latest blow leaves Canadian LNG development very much in doubt. In fact, most observers believe that Petronas\u2019s move to the sidelines probably sounds the death knell for the industry, at least for the foreseeable future.<\/p>\n<p>For more on how the Colder War is forever changing the energy sector and global finance itself, <span style=\"text-decoration: underline;\"><a href=\"http:\/\/www.caseyresearch.com\/go\/uhz5b-2\/PIP\" target=\"_blank\">click here to get your copy<\/a><\/span> of Marin\u2019s <em>New York Times<\/em> bestselling book. Inside, you\u2019ll discover more on LNG and how this geopolitical chess game between Russia and the West for control of the world\u2019s energy trade will shape this decade and the century to come.<\/p>\n<h4><span style=\"font-size: small;\">By Marin Katusa, Chief Energy Investment Strategist, Casey Research<\/span><\/h4>\n<p>&nbsp;<\/p>\n<div id=\"xvMdV95u77zU\" style=\"clear: both;\">The article <a href=\"http:\/\/www.caseyresearch.com\/go\/uhz8c-2\/PIP\" rel=\"permalink\">Russia and China\u2019s Natural Gas Deals Are a Death Knell for Canada\u2019s LNG Ambitions<\/a> was originally published at <a href=\"http:\/\/www.caseyresearch.com\/go\/uhztd-2\/PIP\">caseyresearch.com<\/a>.<\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>By Marin Katusa, Chief Energy Investment Strategist, Casey Research In recent years, a number of Asian companies have been betting that Canada will be able to export cheap liquefied natural gas (LNG) from its west coast. These big international players include PetroChina, Mitsubishi, CNOOC, and, until December 3, Malaysian state-owned Petronas. However, that initial interest [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-64842","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/64842","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=64842"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/64842\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=64842"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=64842"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=64842"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}