June 12, 2013 at 13:10 PM EDT
Malaysia Canadian LNG Investing
Looking for a way to profit from LNG demand? This may be it.

This Article Originally was Published here: http://www.energyandcapital.com/articles/malaysia-canadian-lng-investing/3499

Petronas, the state oil and gas company of Malaysia, will be investing as much as $5 billion in a west Canadian liquefied natural gas (LNG) export project. The project has been dubbed the Pacific Northwest Project, and Reuters reports that it will ultimately result in two LNG trains carrying 6 million tonnes daily by late 2018 or 2019.

However, total investment could run as high as $20 billion, suggests Yahoo! News. The $5 billion mentioned earlier is to go toward a pipeline that will supply the twin LNG trains; the pipeline will be developed by TransCanada Corp., of Keystone XL project notoriety.

Malaysia is developing this project with a view toward meeting rapidly growing demand for LNG from various Asian countries. It’s even possible the project will expand to include a third train, which would further increase carrying capacity. Petronas has been making some significant moves internationally. In 2012, Petronas bought out Canada’s Progress Energy Resources Corp. The deal attracted major scrutiny and was, in fact, originally opposed by the Canadian government. In the end, though, the deal went through.

Petronas has already confirmed that Japan Petroleum Exploration Co. will be its first LNG purchaser in this latest project. Japan Petroleum bought a 10 percent share in the Pacific Northwest Project. At present, Petronas is actively looking for more buyers. However, the company intends to retain at least a 50 percent ownership stake.

In the meantime, the nation’s second floating LNG project continues to be developed. That FLNG project, situated in the Rotan Field in Malaysia’s Block H, could begin producing as soon as 2016. It’s a project with capacity equivalent to 1.5 million tpy. Additionally, Malaysia’s first FLNG project, the 1.2 million tpy Kanowit field project—located around 180 kilometers off Bintulu’s shores—is likely to begin production from 2015 onward.

Canada Leads North American LNG

Canada has certainly been taking steps to consolidate its position as the leader in North American LNG exports, particularly as far as Asia is concerned. Let’s pause for a moment to note that popular sentiment about shale gas is no longer as unequivocally sunny as it once was. President Obama’s administration is yet to issue a clear statement regarding natural gas export terminals, and until that happens, we’re continually flaring off excess natural gas. Yet, at the same time, cost inflation is underway.

Meanwhile, Canada’s British Columbia province is looking toward liquefying some 6 billion cubic feet per day (although this figure could slide downward significantly due to rising costs of labor and materials). The one constant appears to be demand for LNG from Asian markets. If anything, that demand continues to rise unchecked.

Right now, Asian consumers are paying in excess of four times what we’re paying for gas here in North America. It’s a lucrative market, to put it mildly. China and Japan are working to reduce this disparity somewhat, but it’s a slow process. Obviously, it’s a ripe opportunity for North American gas companies. Petronas hopes to triple its rig count in British Columbia over 2013, and will begin Asian shipments by 2018. The company’s barrels of oil equivalent figures are likely to go up from 50,000 per day to 80,000 over the same period.

As I mentioned, Canada is positioning itself as the LNG leader in this scenario. Consider that, so far, the country has approved export licenses equivalent to a capacity of 4.66 billion cubic feet of gas. The U.S., in contrast, has approved just 2.2 billion cubic feet. Much of that disparity stems from the fact that the U.S. domestic market is worried about rising national gas costs from their present rock-bottom levels. But companies won’t wait around, and that’s why majors like Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) are looking toward Canada.

Indeed, Chevron’s CEO openly remarked to Bloomberg on the company’s move toward Canada:

One of the things attracting us to Canada is that it’s already a natural resources exporting country. We’ve decided that Canada is going to be the focus of our North American LNG efforts.”

However, the U.S. will perhaps be able to catch up soon enough. Right now, there are 19 proposed LNG projects awaiting approval. As more and more win approval, the gap between the U.S. and Canada in terms of LNG activity will narrow. The real concern is what that might do to our domestic gas prices.

 

This Article Originally was Published here: http://www.energyandcapital.com/articles/malaysia-canadian-lng-investing/3499



Malaysia Canadian LNG Investing originally appeared in Energy and Capital. Energy and Capital, a free daily newsletter, offers practical investment analysis in the new energy economy.
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