Why is everyone talking about LNG?

By Chris Biasutti

The headlines have been fast and furious over the last few months as Western Canada gears up to ride the next big resource wave: China state owned energy giant draws up plans for massive Liquefied Natural Gas (LNG) project in BC [i], Malaysia s Petronas bets tens of billions on BC [ii] and Investment in Canada s Natural Gas sector set to rival the oilsands, [iii] cover just a few of the dozens of headlines that reference the $335 billion anticipated to be spent on natural gas development in Western Canada by 2035.

Natural Gas is on track to replace Oil as the primary economic driver in the West and understanding why, how and where this money will be spent is massively important to your success as a real estate investor in Canada. What exactly is LNG? And how will it affect your real estate investments? These are questions that should be near and dear to the hearts of real estate investors Canada wide.

Rich Coleman, the Deputy Premier, Minister of Natural Gas Development and Minister Responsible for Housing in British Columbia, in short, Minister of Everything plays no small role in supporting the development and growth of the Natural Gas business in BC. At a meeting at the end of November, Mr. Coleman outlined what the Government was doing to drive this business forward and what progress had been made to date based on the LNG Strategy they released last September.

Here are the messages the Minister delivered that are most relevant to real estate investors:

1. Each proposed LNG project will spend up to $1 Billion before making a final investment decision.

There are currently eleven export projects that have been announced for the West Coast of BC. The Minister noted five companies exploring the LNG opportunity have already set up Vancouver offices. He estimates more than $2 billion has already been spent here as those companies approach making a final investment decision. Some of the companies, such as the Chevron/Apache Partnership, have spent over $700 million and begun blasting and other site prep for their export terminal.

Key Investor Insight Each export project currently announced requires on average an annual supply of Natural Gas double that of what is currently produced each year in Northeast (NE) BC. The companies will have to hire skilled workers to increase the production of Natural Gas in NE BC long before the export terminals are complete. Consequently, the unemployment rate in NE BC is already below the provincial average.

2. Each LNG export project can be broken down into three parts. (Insert Photo)

–The LNG Terminal between a $9 billion and $12 billion investment

– The Pipeline A $6 billion investment

– Upstream Production Each project requires a minimum of $2 billion per year investment into upstream production in NE BC to supply the export terminal with Natural Gas

-Key Investor Insight For every $1 billion spent to construct a LNG Export Terminal there will be an estimated $3 billion spent in NE BC to produce the gas, construct pipelines and deliver the Natural Gas to the export terminal.

3. Petronas estimates it will spend $2 billion a year for the next 5 years on Natural Gas Production in NE BC to prove up reserves.

Petronas has purchased at least 10 LNG ships to transport Natural Gas. They have already purchased the pipe for their pipeline and tend to be in the process of acquiring various parts like stainless concentric reducer, flanges, etc., for the LNG facility. The Prime Minister of Malaysia and the owner of Petronas have publicly stated they will spend $36 billion on the plant, pipeline and production.

Key Investor Insight Petronas acquired Progress Energy for $5.5 billion in 2012. Progress plans to drill 340 new wells one hour north of Fort St John within the next two years to establish how much Gas its holdings can supply Petronas s proposed LNG terminal. Progress Energy also just announced a $1.5 billion acquisition of a piece of Talisman Energy s lucrative Montney lands they intend to develop solely for North American consumption.

4. Aurora LNG put a $12 million non-refundable deposit down last week on Grassypoint, north of Prince Rupert, and they want to be the first facility out of the gate.

Aurora LNG consists of Chinese owned Nexen Energy, and two Japanese companies, Inpex Corp. and JGC Corp.

Key Investor Insight CNOOC, or the China National Offshore Oil Corporation acquired Nexen in 2012 for a whopping $15.1 billion. Another subsidiary of CNOOC, and the largest importer of LNG into China, Inpex has already invested in 7 LNG import projects in Asia and JGC have themselves designed and constructed one third of the current global LNG capacity. (Insert Photo F)

5. Each company has given the Province a detailed list of the specific skilled labour required to execute the projects and that is forming part of BC’s Job Action Plan. (Insert Photo I)

Minister Coleman, the Premier, and their staff have made it a priority to ensure BC is the most politically supportive place worldwide to develop the Natural Gas resource. This includes in-depth conversations between the Province and senior management of all the companies who are planning projects to understand intimately what specific jobs are required and how many. The Minister noted in many cases the companies have provided a list of all the jobs that will be required to execute the construction of plants and pipelines (maybe they could look at companies like Versa Valves who might be able to give them good quality products for the pipeline), and increase production. These lists form an integral part of the BC Job Action Plan. That said, they might need to hire professionals to carry out the construction as safety may be the most important. In addition to that, precision devices such as Double Block and Bleed Valve can be used to prevent leaks in the pipeline.

Key Investor Insight The Province anticipates requiring over 100,000 new skilled workers for construction and to supply the Natural Gas to five LNG export terminals. Over 35,000 of those jobs will be skilled long-term jobs created in NE BC to increase Gas Production. NE BC has a population of 64,000 people today.

6. BC has the strongest fundamentals and is the most politically supportive of any market for LNG, globally.

BC is rapidly emerging as the preeminent place world-wide where it is economically viable for major energy companies and Asian countries to invest in and develop a secure supply of Natural Gas. A report just released in early November by the National Energy Board found that BC has double the Natural Gas reserves previously estimated, meaning energy companies can produce and export gas for 150 years out of NE BC. Minister Coleman noted that companies have indicated the cost savings, as a result of the cooler climate for liquification and compression in BC, is the equivalent of a free pipeline over the life of the project, or an estimated $6 billion.

Key Investor Insight The Provincial Government understands that developing this industry is a game changer for the BC economy and they are fully committed to making that happen. Minister Coleman understands the competitive nature of the industry and that timing is critical. He made it clear he understands LNG is a globally competitive business, so we have to do it better than they do and quicker than they do and get our numbers right. And I think we re there.

7. There is basically no resistance at all to the construction of the natural gas pipelines.

The First Nations communities like Natural Gas and are onside with the development of this industry. There are pipeline partnerships underway and partnerships with First Nations to build the LNG facilities.

Minister Coleman was very clear on the point that there is a massive difference between a Natural Gas pipeline going from NE BC to NW BC compared to a heavy crude pipeline coming from Alberta across BC. He noted there are three major Natural Gas pipeline projects already underway, with surveying routes and the beginning of site preparation. (Insert Photo G)

Key Investor Insight Production of Natural Gas needs to sustain quadruple of what is currently produced from NE BC and at least two pipelines need to be built prior to the completion of any one of the major export terminals. As a result, watch for the NE region of the Province to attract more long-term skilled jobs, compared to short-term construction jobs needed to construct the export terminals in NW BC.

The International Energy Agency anticipates global demand for Natural Gas will double by 2030. As British Columbia continues to emerge as the primary candidate to supply this increased demand, to not only the emerging markets in Asia, but also to established gas markets around the world, the future is very bright for real estate investors in the gas rich regions of North East British Columbia.

As the Managing Partner of Bluewater Investments and the Director of Sales and Marketing for Western Canadian Properties Group, Chris has developed a focus on Wealth, Wisdom and Well-Being and is passionate about sharing this by educating investors how to identify, analyze and select real estate investment opportunities to fit, not just their overall portfolio and investment objectives, but their lifestyle. Western Canadian Properties Group currently markets brand new, cash-flowing investment properties for the “Arm-Chair Investor” in the high growth markets of Fort St John and Dawson Creek BC.