Crowdfunding of Common Carrier Gas Trunklines and LNG Plants Who Owns that Elephant in our Room?

Wikipedia defines “Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from many people, typically via the Internet. Crowdfunding is a form of crowdsourcing and of alternative finance.”

If you live in a gas rich basin, like Western Canada, where, in some places, the associated gas price hit negative pricing during the last six months, you start to think some crazy things! But then again, is crowdfunding all that crazy? Aren’t we already part way down that tortuous and slightly scary path?

As you may know, in July 2017, PETRONAS announced the cancellation of the 20 Million tonne p.a. Pacific Northwest LNG project in British Columbia, citing: “ extremely challenging environment brought about by the prolonged depressed prices and shifts in the energy industry.” The delivered value of gas in North Asia is estimated to have dropped by about 35% over the last few years.

I recently saw on LinkedIn that the PETRONAS CEO is now suggesting that LNG buyers need to engage in early collaboration on LNG export projects, to ensure favourable market conditions and to encourage investment:

“Without sufficient investments, both buyers and sellers face an uncertain future in terms of business sustainability and energy security.” (Upstream Online 18-10-17).

Over the last decade, the North American natural gas industry has faced serious gas-to-gas competition within its integrated market. Therefore, the producers have been seeking price concessions from their suppliers, the service sector and the EP & C contractors. These requests developed some teeth when the oil price also crashed.

The trickle-down economy caused by the low oil and gas prices has now brought pressure to bear on the consultants, the professionals, the field and support staff with record levels of unemployment and underemployment of oil-field personnel and equipment in North America, except for the few active areas of shale and tight oil plays.

Unfortunately, even that bit of sunny weather comes with a grey lining for the gas suppliers, because of the high and growing producing gas-oil ratios seen in many ultra-tight oil plays. (Thank goodness that gas huff and puff may also prove be their EOR method of choice!)

The declines in the oil and gas royalties and/or tax revenues in Canada have now attracted the attention of all levels of government. In general, they espouse to support the idea of increased LNG trade, but with caveats about how the required construction and line routing might be viewed and opposed by the vociferous anti-fossil fuel lobby. Moreover, politicians are wary of the leverage that these environmental activists can achieve with younger urban voters. Therefore, the governments publicly blame the impasse on the business environment, suggesting this a problem for the industry or market forces to resolve.

So, that would suggest that the only players who are currently off-base are the financial or government investment institutions, who failed to help finance any major Pacific Coast LNG projects; and possibly some buyers, who are seeking bargain basement LNG pricing in order to commit to long term contracts.

If we try to “follow the money”, we might just find ourselves staring in the mirror. Many of us expect our pension funds, portfolio managers and, possibly, even our banks to manage our money in a way that precludes achieving relatively low “Utility Rates of Return.”

All of the stakeholders are also concerned about the risks posed by the litigious efforts of the environmental and anti-fossil fuel organizations to undermine the economics by delaying the implementation stage of energy mega-projects.

So, how can we break this vicious cycle and get back to doing valuable work? Maybe we need to follow the example of the anti-fossil fuel lobby and start pressuring the Institutional Lenders, the Investment Community and those who manage our tax dollars to invest more money into long term development opportunities that encourage international trade and growth by increasing the supply of low cost, relatively clean energy!

If you missed the high oil price boat is your only option to sit and wait for the next one? What if you had all the resources and tools to build an ark, shouldn’t you make every effort to give it a shot?

If, in round numbers, we were to assume that:

  • A $10 billion (33%) reduction in costs was needed to convert 4.5BCF/d of natural gas into 20 million tonne p. a. of LNG and send it to a different market.
  • Adjustments in the commodity market and contracting costs have likely realized a 16% cost reduction (say $5 billion).
  • The buyers were willing to invest say $2.5 Billion through pre-purchasing future LNG deliveries.

The proponents would only need to find an incremental $2.5 Billion, for which crowdfunding may be the answer! If politicians can raise millions of dollars to get elected, why not seek funding from the same diverse source. If the infamous 1% (370,000) of like-minded Canadians were to invest $7,000 each; or if the government were to reallocate $150 of the taxes being paid by the 17 million taxpayers in Canada, we could provide the extra $2.5 billion, and get a significant LNG export facility under-way!

The same opportunities are likely available for the gas rich regions in the USA, like the Rocky Mountain Region, from Wyoming to Colorado, and in Alaska.

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