Oil and gas news July 27, 2015

B.C. legislature approves 25-year fiscal terms for LNG projects

 

 

(Financial Post; Canada; July 23) - The British Columbia legislature late evening July 21 passed the Liquefied Natural Gas Project Agreements Act, removing one of the final conditions to construction of the first LNG plant in the province. The bill means that the Pacific NorthWest LNG project can now count on a 25-year fiscal deal that protects it from targeted tax increases. The other conditions are outside the province’s control: Federal environmental review, First Nations and the global LNG market.

 

Malaysia’s Petronas-led group wants to build a multibillion-dollar LNG plant and export terminal on Lelu Island, near Prince Rupert, B.C. Premier Christy Clark recalled the legislature for an extraordinary summer session to pass the law. After a week of debate, the bill passed with 43-27. The opposition New Democrats Party wanted the province to drive a harder bargain, and the Green Party member said the LNG industry “cannot coexist” with B.C.’s greenhouse gas reduction targets.

 

B.C. Finance Minister de Jong said proponents wanted long-term assurance over fiscal terms. The agreement provides four areas of protection: LNG income tax, natural gas development tax credit, carbon tax, and key features of greenhouse gas regulations. Proponents “wanted to know … they and their industry wouldn’t be singled out for discriminatory tax policy and in a couple of very specific areas, we provided in the agreement a mechanism to ensure that that wouldn’t happen,” de Jong said. The agreement will be a template for other LNG projects planned for the B.C. coast.

Oil and gas news briefs July 13, 2015

U.S. gas exports into Mexico nearly tripled between 2010-2015

(High Country News; Paonia, CO; July 7) - If you look at a recent map of Kinder Morgan’s natural gas pipelines in the West, you’ll see several new spurs heading south across the border into Mexico. The pipeline giant has been part of a major increase in energy exports in recent years that largely escaped notice. While potential exports of liquefied natural gas hogged countless headlines, U.S. gas exports through new and expanded cross-border pipelines nearly tripled from 2010 to 2015.

 

This growth is expected to continue as Mexico takes advantage of low-priced U.S. gas to help continue transforming its electricity sector, which in 2014 was opened to private-sector participation. “The quiet untold story is that the United States has been a net exporter of gas to Mexico for many years,” said Martin Edwards, a vice president at the Interstate Natural Gas Association of America, a pipeline company trade group. “That’s not only expected to continue, but to grow significantly over the next decade or so.”

 

The growth is good news for Western producers, who saw their Eastern and Midwest markets dry up in recent years with the shale gas boom. Texas producers may be the biggest beneficiaries of new pipelines taking gas into Mexico. Kinder Morgan’s Sierrita pipeline, which went online last year, runs to Sasabe, Ariz., where it meets a new line on the Mexican side of the border. In 2014, Kinder Morgan delivered an average 1.9 billion cubic feet of gas per day into Mexico through several different pipelines.

Oil and gas news briefs for July 9, 2015

B.C. legislature convenes next week to debate LNG project deal

 

(CBC News; July 6) - The B.C. government has agreed to compensate a major liquefied natural gas project if the province raises taxes on the LNG industry during a 25-year period after plant start-up. Finance Minister Mike de Jong released details July 6 of the deal it reached in May with Pacific NorthWest LNG, a consortium led by Malaysian energy giant Petronas which wants to build an LNG export terminal near Prince Rupert. The legislature will convene next week for a rare summer session to debate the deal.

 

Under the terms of the agreement, B.C. has agreed to compensate the LNG consortium if taxes on the industry are raised, natural gas tax credits are reduced or new carbon taxes target the LNG sector. The agreement does not protect the company from increases in provincial sales and corporate taxes. De Jong said the deal gives the company the certainty it needs to make a final investment decision.

 

"It provides a measure of stability that says to them, here are the rules of the game that will govern this industrial activity within this jurisdiction for the term of the agreement and they can bank on that and know those rules are not likely to change," he said. Opposition party member Bruce Ralston said it's a good deal for the company, but not good enough for British Columbians. The project still faces a number of hurdles, including opposition from aboriginal groups that have vowed to fight it in court.

 

The key determination would be if a tax or regulatory change were to increase costs to the LNG operator by $25 million or more in a year or by a cumulative $50 million over five years. The province would be contractually obliged to “make the proponent whole,” offsetting those costs directly or via deductions from provincial taxes. If the parties could not agree on compensation, the dispute would be submitted to commercial arbitration.

 

Oil and gas news briefs July 6, 2015

China hesitant to grow too dependent on Russian gas

 

(Bloomberg; July 2) - China is wary of expanding energy investments in Russia because closer ties with the Kremlin could harm its relations with the United States, according to a former researcher at China’s biggest offshore explorer. The Beijing government isn’t prepared to jeopardize its U.S. economic links, said Chen Wei Dong, who resigned as chief researcher for China National Offshore Oil Corp.’s Energy Economics Institute in May. The U.S. is viewed as a global partner while Russian ties are regional, he said.

 

Russia is turning to Asian markets after its annexation of Crimea led the U.S. and Europe to impose sanctions, including oil and banking restrictions. “If Russia has bad relations with the U.S., this may make it more difficult for China to build better relationships with Russia,” Chen said in an interview in Moscow last week. “China is looking for a balance.” The East Asian nation needs to safeguard its relationship with the U.S. because, while the two don’t trade oil or gas, they are key economic partners.

 

Gazprom already supplies liquefied natural gas to China, and Russia struck a deal last year to pipe gas to China through a new Siberian link and is pushing for a second contract. Yet China may take a cautious stance, having seen gas supply to Europe disrupted during pricing disputes between Gazprom and Ukraine. “People say: We can import gas from Russia but we have to keep it at a certain level, 15 percent, maximum 20 percent,” Chen said. “Otherwise we will become too insecure, too dependent.”

Oil and gas news briefs July 2, 2015

Japan paid an average $8.84 for LNG last year; lowest since 2009

(Reuters; June 29) - Japan's average price for imported liquefied natural gas fell to its lowest since September 2009, dragged down by weak oil markets, offering relief to the countries' utilities that had been burning record amounts of the fuel after the Fukushima 2011 nuclear plant disaster. LNG import prices averaged $8.84 per million Btu in May, the lowest since $8.28 in September 2009, Reuters calculations based on government data showed June 29. The average includes long-term contracts and short-term deals.

 

Japan, which takes in about a third of global LNG volume, spent a record 7.78 trillion yen ($63.25 billion) purchasing a historically high 89 million metric tons of the fuel in the fiscal year that ended March 31. A flood of new supply coming on stream later this year in Australia and the U.S. is helping to cap the global price. Asian LNG spot prices for August delivery were $7.30 last week. The majority of LNG imports in Japan are long-term oil-linked contracts that respond to oil prices with a time lag of several months.

 

Oil and gas news briefs June 29, 2015

Propane supply glut pushes down prices to 13-year low

 

 

(Wall Street Journal; June 25) - Propane is tanking. The U.S. benchmark price for the gaseous byproduct of oil production has plunged 18 percent this year. Driving the selloff is a supply glut that some analysts said could hold down prices for years. Production of propane has surged to an all-time high as companies that tap oil and gas from shale formations have sought to boost their revenue by targeting fields with big reserves of propane and similar fuels used to heat homes, make chemicals and fire up grills.

 

This month, propane prices tumbled to a 13-year low. Prices in Western Canada, a key producing region, turned negative in May for the first time on record, meaning that producers paid buyers to take propane. Producers “have reached the limits of demand … in the North American market,” saidMatthew Adams,portfolio manager for the Franklin Natural Resources Fund. The drop in propane prices is the latest example of how the years-long boom in U.S. energy output continues to upend markets.

 

The nation’s propane stockpiles are rising so fast that some traders said there is a chance that available storage could run out before winter, when inventories usually decline. Supplies of propane and propylene, a related product, are at their highest level for this time of year since the 1970s. The decline in wholesale prices is already trickling down to consumers, who are starting to see lower prices. “It’s a great year for the consumer … and hopefully a good two or three,” said a Pennsylvania distributor.

Oil and gas news June 25, 2015

B.C. premier calls special session to consider LNG tax legislation

 

(Vancouver Sun; June 23) – B.C. Premier Christy Clark's government is recalling the legislature for a rare summer session to pass key legislation enabling a liquefied natural gas project. The government will reconvene the legislature July 13, Finance Minister Mike de Jong announced June 23. The intention is to pass enabling legislation that will allow the government to enter into a project development agreement with Pacific NorthWest LNG, which is proposing an export terminal near Prince Rupert.

 

Pacific NorthWest LNG announced last month a conditional final investment decision on the multibillion-dollar project, dependent on legislative approval of the tax-certainty bill, as well as federal environmental approval and some type of agreement with local First Nations. De Jong said he's not sure how long it will take to pass the legislation, but if approved it would allow the government in the future to make similar LNG agreements with other developers using cabinet approval.

 

The entire project development agreement with Pacific NorthWest LNG will be made public, de Jong said. It protects the project from future targeted taxes. Malaysia’s state-owned Petronas is the lead partner in the LNG plant, marine terminal and gas pipeline.

Oil and gas news briefs June 22, 2015

 

Gazprom may delay Vladivostok LNG to focus on gas line to China

 

(Bloomberg; June 19) - Gazprom could delay some investments next year to focus its resources on building natural gas pipelines to China and paying dividends, a person with knowledge of the matter said. Investments in the planned Vladivostok liquefied natural gas project in Russia’s Far East and possibly other projects may be postponed, the person said, asking not to be identified as the information isn’t public.

 

U.S. and European sanctions on technology exports to Russia could hold up Vladivostok construction in any case, he said. Gazprom had planned to start the LNG project, a day’s voyage from the world’s biggest LNG importer, Japan, by 2019. Seeking to increase its presence in Asia, the Russian gas giant agreed in 2011 with a group of Japanese companies led by trader Itochu Corp. to study the feasibility of the project.

 

Last year, Gazprom said pipeline gas supplies to China could be more competitive than Vladivostok LNG, a project that may cost about $15 billion, according to estimates of VTB Capital analysts in Moscow. A gas pipeline into China would cost much more than that, but would deliver more gas than an LNG plant.

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