Russia and China’s Natural Gas Deals are a Death Knell for Canada’s LNG Ambitions

By Marin Katusa, Chief Energy Investment Strategist

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 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’s now looking less and less likely that any of these Canadian LNG consortia will ever make a final investment decision to forge ahead.

That’s thanks to the Colder War—as I explain in detail in my new book of the same name—and the impetus it’s given Vladimir Putin to open up new markets in Asia.

The huge gas export deals that Russia struck with China in May and October—with an agreed-upon price ranging from $8-10 per million British thermal units (mmBtu)—has likely capped investors’ 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.

At these prices, not even British Columbia’s new Liquefied Natural Gas Income Tax Act—which has halved the post payout tax rate to 3.5% and proposes reducing corporate income tax to 8% from 11%—can make Canadian natural gas globally competitive.

These tax credits are too little, too late, because Canada is years behind Australia, Russia, and Qatar’s gas projects. This means there’s 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.

Sure, there are huge proven reserves of natural gas in Canada. It’s just been determined that Canada’s Northwest Territories hold 16.4 trillion cubic feet of natural gas reserves, 40% more than previous estimates.

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’s, Australia’s, and Qatar’s. So unless potential buyers in Asia are confident that Henry Hub gas prices will stay below $5, they’re unlikely to commit to long-term contracts for Canadian LNG—or US gas for that matter—because compression and shipping add at least another $6 to the price.

Shell has estimated that its proposed terminal, owned by LNG Canada, will cost $40 billion, not including a $4 billion pipeline. As LNG Canada—whose shareholders include PetroChina, Korea Gas Corp., and Mitsubishi Corp.—admits, it’s not yet sure that the project will be economically viable. Even if it turns out to be, LNG Canada says it won’t make a final investment decision until 2016, after which the facility would take five years to build.

But investors shouldn’t hold their breath. It seems like Korea Gas Corp. has already made up its mind. It’s planning to sell a third of its 15% stake in LNG Canada by the end of this year.

And who can blame it? The industry still doesn’t have clarity on environmental issues, federal taxes, municipal taxes, transfer pricing agreements, or what the First Nations’ cut will be. And these are all major hurdles.

Pipeline permits are also still incomplete. The federal government still hasn’t decided if LNG is a manufacturing or distribution business, which matters because if it rules that it’s a distribution business, permitting is going to be delayed.

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.

Canada is now under the sway of radical environmental groups and think tanks like the Pierre Elliot Trudeau Foundation, which take as a given that Canada should shut down its tar sands industry altogether. For these people, there’s no responsible way to build new fossil fuel infrastructure.

Elsewhere, investors might expect money and jobs to do the talking, but Justin Trudeau’s 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.

Some energy majors are already shying away from Canadian LNG. BG Group announced in October that it’s 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.

Not everyone is throwing in the towel. Yet. ExxonMobil—which is in the early planning phase for the West Coast Canada LNG project at Tuck Inlet, located near Prince Rupert in northwestern British Columbia—has just become a member of the British Columbia LNG alliance.

But Petronas was a key player. It was thought that the company would be moving ahead after British Columbia’s Ministry of Environment approved its LNG terminal, along with two pipelines that would feed it.

Instead, Petronas pulled the plug. We can’t know how many things factored into that decision nor whether it’s 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’s 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’s northeast.)

This latest blow leaves Canadian LNG development very much in doubt. In fact, most observers believe that Petronas’s move to the sidelines probably sounds the death knell for the industry, at least for the foreseeable future.
For more on how the Colder War is forever changing the energy sector and global finance itself, click here to get your copy of Marin’s New York Times bestselling book. Inside, you’ll discover more on LNG and how this geopolitical chess game between Russia and the West for control of the world’s energy trade will shape this decade and the century to come.

The article Russia and China’s Natural Gas Deals Are a Death Knell for Canada’s LNG Ambitions was originally published at casey research

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Total War over the Petrodollar

By Marin Katusa, Chief Energy Investment Strategist

The conspiracy theories surrounding the death of Total SA’s chief executive, Christophe de Margerie, started the second the news broke of his death. Under mysterious circumstances in Moscow, his private jet collided with a snowplow just after midnight. De Margerie was the CEO of Total, France’s largest oil company.

He’d just attended a private meeting with Russian Prime Minister Medvedev, at a time when the West’s relationship with Russia is fraught, to say the least.

One has better odds of being struck by lightning at an airport then a snow plow, or any other ground support vehicles hitting a plane and killing all inside the plane, in my opinion. And I say that as someone who’s familiar with airports, having worked at Vancouver International Airport when I was in university; I was the one who would bring the plane into its parking bay.

If it weren’t for those short odds, a snowplow on the runway with an allegedly drunk driver would be the perfect crime. But who would benefit from his death?

De Margerie was one of the few business leaders who spoke out against the isolation of Russia. On this last trip to Moscow, he railed against sanctions and the obstacles to Russian companies obtaining credit.
He was also an outspoken supporter of Russia’s position in natural gas pricing and transportation disputes with Ukraine, telling Reuters in an interview in July that Europe should not cut its dependence on Russian gas but rather focus on making the supplies more secure.

But what could have made de Margerie a total liability is Total’s involvement in plans to build a plant to liquefy natural gas on the Yamal Peninsula of Russia in partnership with Novatek. Its most ambitious project in Russia to date, it would facilitate the shipping of 800 million barrels of oil equivalent of LNG to China via the Arctic.

Compounding this sin, Total had just announced that it’s seeking financing for a gas project in Russia in spite of the current sanctions against Russia. It planned to finance its share in the $27 billion Yamal project using euros, yuan, Russian rubles, and any other currency but US dollars.

Did this direct threat to the petrodollar make this “true friend of Russia”—as Putin called de Margerie—some very powerful and dangerous enemies amongst the power that be, whether in the French government, the EU, or the US?

In my book The Colder War, one chapter deals with “mysterious deaths” and how they are linked to being on the wrong side of the political equation. Whether it’s going against Putin or against the petrodollar, there are many who have fallen on both sides.

If Total doesn’t close the $27 billion financing it needs to move forward with the Yamal LNG project then we’ll know someone stepped in to prevent an attack on the petrodollar.  The CEO of Total, before his death and his CFO were both strong supporters of Total raising the $27 billion in non U.S. dollars and moving the project forward with the Russians.  But, this could all change if the financing does not complete.

How many other Western executives who dare to help Russia bypass sanctions—and turn it into an energy powerhouse—will die under suspicious circumstances?

Marin Katusa, is author of The Colder War, manager of multiple global energy-exploration hedge funds, and co-founder of Copper Mountain Mining Corporation. Click here to get a copy of his must-read new book, The Colder War. Inside, you’ll discover exactly how Putin is taking over the energy sector, how far ahead he is, and how alarming it is that no one in the US or Europe has even entered the race.

The article Total War over the Petrodollar was originally published at casey research

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The Colder War and the End of the Petrodollar

By Marin Katusa, Chief Energy Investment Strategist

The mainstream media are falling over themselves talking about Russia’s just-signed “Holy Grail” gas deal with China, which is expected to be worth more than $400 billion. But here’s what I think the real news is… and nobody’s talking about it—until now, that is. China’s President Xi Jinping has publicly stated that it’s time for a new model of security, not just for China, but for all of Asia. This new model of security, otherwise known as “the new UN,” will include Russia and Iran, but not the United States or the EU-28.

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This monumental gas deal with China does so much more for Russia than the Western media are reporting. First off, it opens up Russian oil and gas supplies to all of Asia. It’s no coincidence that Russian President Putin announced the gas deal with China at a time when the tensions with the West over Ukraine were growing. Putin has U.S. President Obama exactly where he wants him, and it’s only going to get worse for Europe and America. But before I explain why that is, let’s put this deal in terms we can understand. The specific details have not been announced, but my sources tell me that the contract will bring in over U.S. $10 billion a year of revenue to start with.

The 30 year deal states that every year, the Russians will deliver 1.3 trillion cubic feet (TCF) of gas to China. The total capital expenditure to build the pipeline and all other infrastructure for the project will be more than $22 billion—this will be one of the largest projects in the world. You can bet the Russians won’t take payment in US dollars for their gas. This is the beginning of the end for the petrodollar.

The Chinese and Russians are working together against the Americans, and there are many countries that would be happy to join them in dethroning the U.S. dollar as the world’s reserve currency. This historic gas deal between Russia and China is very bad news for the petrodollar. Through this one deal, the Russians will provide about 25% of China’s current natural gas demand. In a word, this is huge. It’s also not a coincidence that Putin sealed the deal with China before the Australian, US, and Canadian liquefied natural gas (LNG) terminals are completed. If you read our recent Casey Energy Report issue on LNG, you know to be wary of the hype about LNG’s “bright future.” Take note: this deal is a serious negative for the global LNG projects.

I also stated in our April 2012 newsletter:

Putin has positioned Russia to play an increasingly dominant role in the global gas scene with two general strategies: first, by building new pipelines to avoid transiting troublesome countries and to develop Russia’s ability to sell gas to Asia, and second, by jumping into the liquefied natural gas (LNG) scene with new facilities in the Far East.

Pretty bang on for a comment that was made over two years ago in print, don’t you think?

So, what’s next? Lots. Putin will continue to outsmart Obama. (Note to all Americans: the Russians make fun of you—not just for your poor choice of presidents, but also for your failed foreign policy that has led to most of the world hating America. But I digress.) You will see Russia announce a major nuclear deal with Iran, where the Russians will build, finance, and supply the uranium for many nuclear reactors. The Russians will do the same for China, and then Syria. With China signing the natural gas deal with Russia and the president of China publicly stating that it’s time to create a new security model for the Asian nations that includes Russia and Iran, it’s clear China has chosen Russia over the U.S.

We are now in the early stages of the Colder War.

The European Union will be the first victim. The EU is completely dependent on Russia for its oil and natural gas imports—over one-third of the EU-28’s supply of oil and natural gas comes from Russia. I’ve been writing for years about this, and I’m watching it come true right now: the only way out for the EU countries is to use modern North American technology to revitalize their old proven oil and gas deposits.

I call it the European Energy Renaissance, and there’s a fortune to be made from it. Our Casey Energy Report portfolio has already been doing quite well from investing in the European Energy Renaissance, but this is only the beginning. If Europe is to survive the Colder War, it has no choice but to develop its own natural resources. There are naysayers who claim that Europe cannot and will not do that, for many reasons. I say rubbish.

Of course, to make money from this European dilemma, it’s imperative to only invest in the best management teams, operating in those countries with the political will to do what it takes to survive… but if you do, you could make a fortune. Doug Casey and I plan on doing so, and so should you.

For example, two weeks ago in this missive, I discussed “The Most Anticipated Oil Well of 2014,” where if you invested, in just two weeks you could be up over 40%. Not only did I write in great detail about the company, I even interviewed the CEO because of the serious potential this high-risk junior holds. I said in that Dispatch that the quality of the recorded interview wasn’t first class, but the quality of information was. The company just put together a very high-quality, professional video showing its potential, and I include it here for all to watch.

Since my write-up, the company has announced incredible news. It’s only months away now from knowing whether or not it has made a world-class discovery. Subscribers to the Casey Energy Report are already sitting on some good, short-term profits with this story, but it keeps getting better.

The more the tension is building in Ukraine (and it’s going to get worse), the more money we’re going to make from the Colder War. There’s nothing you can do about the current geopolitical situation, but you can position yourself and your family to benefit financially from the European Energy Renaissance.

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The article The Colder War and the End of the Petrodollar was originally published at Casey Research

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Is America the Next Big Contender in LNG Exports?

By Russia Today, News Network

Just a few years ago, pundits claimed that the US would be a major LNG importer—now they're saying the US will be a major exporter. The truth, says Casey Chief Energy Investment Strategist Marin Katusa in an RT interview, lies somewhere in between. Compared to its global competitors, says Marin, "America is a bit behind the eight ball, so to become a major player, they have to start getting their act together."

This interview was recorded at the Casey Research Summit in October. You can hear much more about where the US might be going in the eye-opening panel discussion from the Summit, "The Myth of American Energy Independence," with Marin and high caliber guests from the uranium and oil & gas sectors, including former US Secretary of Energy Spencer Abraham and Lady Barbara Judge, chairman emeritus of the US Atomic Energy Authority.

Hear these and more than 30 other speakers discuss the most pressing topics investors and free-market advocates face today, such as: Where to find reliable yield in a volatile market… how to protect yourself (and your assets) from ever greater government intrusion… the 5 top tech trends you should watch (and they may not be what you think)… and much more. You can listen to every presentation, every panel discussion, every workshop from the comfort of your home or car—on CD and MP3.

Learn More Here.


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