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Investment guru pulls plug
Warren Buffett’s Berkshire Hathaway removes C$4B stake in C$9B Quebec LNG project, blaming ‘political uncertainty’ of Trudeau regime Gary Park for Petroleum News
Just when it seemed things couldn’t get worse for Canada’s mega-upstream energy ventures in the wake of Teck Resource’s move to dump its Frontier oil sands venture ... they did.
Amid slight hopes that frontier investments might eventually recover from their loss of favor in the investment community, the sector experienced a double walloping, confirming the worst fears that players with deep pockets agree with Teck.
The mining giant pinned its blame on “political uncertainty” in Canada - illegal blockades of rail lines and ports and a tangled regulatory process that takes years to get nowhere - for a bungled public policy that is costing thousands of jobs and billions of dollars of investment.
Buffett pulls out With the oil and gas sector reeling from Teck’s cancellation of its C$20.6 billion Frontier mine, Warren Buffett, a barometer of global investment confidence, pulled out of the little-known C$9 billion Energie Saguenay LNG project by GNL Quebec to export Western Canadian gas from a liquefaction facility and tanker terminal in Quebec to Asia, the Middle East and South America.
Berkshire Hathaway, the Nebraska-based conglomerate controlled by Buffett, abandoned its plans to invest C$4 billion in Energie Saguenay LNG, effectively shattering the Quebec government’s dreams of building the LNG facility and a 450-mile natural gas pipeline sponsored by Gazoduc, extending gas shipments from the Ontario-Quebec border - a combined investment of C$14 billion to generate 6,000 construction jobs and reduce global greenhouse gas emissions by 28 million metric tons a year.
It would also have been a lifeline to gas producers in Western Canada who are struggling to keep their heads above water, while facing a mounting challenge from environmentalists who said the extraction of raw gas for Energie Saguenay would account for an additional 7.8 million metric tons a year of GHGs.
‘Economically and environmentally virtuous’ Quebec Energy Minister Jonatan Julien described the project as “economically and environmentally virtuous,” while Quebec Premier Francois Legault - ironically a rigid opponent of any pipelines carrying oil sands bitumen across his province to Atlantic Canada - argued that “we need to be open to the possibility that natural gas becomes a transition fuel that replaces coal and nuclear facilities in Europe and Asia.”
Richard Martel, a federal Member of Parliament for the Opposition Conservative Party, said that over the last month “a clear signal has been sent to businesses across Canada that the rule of law (governing the movement of goods by rail) will not be upheld and that major projects (such as Frontier) cannot get built.”
Saguenay Deputy Mayor Michel Potvin said the last-minute decision by Berkshire Hathaway leaves the Energie Saguenay backers with little hope of finding a replacement investor. “We sure aren't going to find one in this region. So we have to roll up our sleeves,” he said.
Raymond James analyst Jeremy McCrea said Berkshire Hathaway has added its name to a growing list of major players such as ConocoPhillips, France’s Total and Devon Energy that have sold assets worth billions of dollars in Canada in recent years, an exodus that has caused activity in the energy sector to plummet.
Hopes in British Columbia However, not all LNG backers are ready to run up the surrender flag, with Chief Executive Officer Mick Dilger of Calgary-based Pembina Pipeline disclosing that his company is eyeing a role in one of several stalled LNG projects in British Columbia.
He said the groundwork is being laid for an entry into the sector between 2025 and 2030, adding Pembina is even adding the new uncertainty of changed government regulations and political disruptions into its risk assessments.
Dilger said Pembina is weighing a possible entry into abandoned projects such as the Aurora LNG project by China’s state-owned CNOOC and ExxonMobil’s withdrawal from its West Coast Canada LNG project, as well as the announcement by Chevron and Australia’s Woodside Petroleum that they are looking for a new partner in their Kitimat LNG project.
Although it is not yet an LNG player in Canada, Pembina is building a liquefied petroleum gas, LPG, facility near Prince Rupert in B.C. to export propane to Asia. The company has also been advancing an LNG export venture on the Oregon coast, although progress has twice been delayed after unfavorable regulatory decisions by the U.S. Federal Energy Regulatory Commission.
Dilger said Pembina is sticking with the Oregon plan “because that cost is nominal and has a huge upside,” aiming to get a new FERC ruling this spring, which AltaCorp Capital analyst Nate Heywood hopes could result in a “material milestone towards development.”
In addition, up to 10 natural gas producers have formed Rockies LNG Partners in hopes of rounding up investment capital in the next few years, targeting a start of exports by 2027.
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