LNG Sale, Export Potential Debated1/2/2013
Saint John’s Canaport LNG facility remains up for grabs and in search of a new majority owner, with the prospect of an additional export terminal in the future being debated among industry experts.
Canaport’s majority owner, Repsol, announced in July its intention to unload its entire liquefied natural gas wing, which includes the Saint John terminal as one of its principal assets.
International interest then appeared to quickly ensue.
At the end of July, Repsol said 10 parties were interested in its LNG properties.
In September, it was reported that Repsol had received at least six bids for its holdings in various liquefied natural gas plants it’s selling as a block opposed to individually.
Bids were received from large energy companies ranging from China to Russia, Britain, Spain and France, with Repsol itself stating that it would like to have a buyer in place by the end of the year.
Now, it’s unclear when a sale can happen all.
“There certainly was a high degree of interest in Repsol’s LNG holdings,” said John Herron, president of the Atlantica Centre for Energy. “Sales and transactions of this magnitude take time, so I’m not surprised that an announcement hasn’t occurred just yet, but I think it’s noteworthy that the LNG business for Repsol is a highly profitable business unit.
“If they are not able to obtain the price that it’s worth, I think all options are on the table and they may elect not to sell.”
The Canaport plant currently turns LNG delivered by ship back into its gaseous form.
Gas processed at the Canaport site is then shipped via the Brunswick Pipeline to the northeastern United States. At full capacity, the Canaport LNG plant can process 1.2 billion cubic feet of natural gas per day.
Typically, though, the plant operates at 35 per cent capacity, moving gas only at peak times to remain highly profitable as natural gas has all but idled most of the liquefied natural gas terminals across North America.
But that has led prospective buyers to consider adding an export component to the facility.
“They are going to be having a lot of difficulty in selling an import venture,” said Tom Haywood of Energy Intelligence, Houston bureau chief of the Texas-based company that tracks the energy industry.
“They did talk about exports and that would make it more attractive, but that would be a lot of money.”
He added: “Unless it was an export venture and it was a little further along, you are not going to sell it by just saying that ‘you could export natural gas here.’”
Haywood said questions of regulatory approval, financing and supply hinder that pitch.
While the potential for an export terminal on the East Coast could be lucrative, he said New Brunswick and its neighbours in Nova Scotia and Quebec have largely been slow to adopt the industry development – and in turn the gas supply – needed to sustain an export facility.
“What would Nova Scotia and New Brunswick be working off of?” Haywood said. “If they were to develop shale gas to its full potential up there, it might have some promise, but that’s years down the line.
“They are not going to build these multi-million dollar terminals without the certainty of supply.”
For its part, Repsol spokesman Kristian Rix said, the company will now be holding its cards close to its chest.
“We are not making any comment on this process until we have a closed process where we can make an announcement,” Rix said, while acknowledging the company’s end-of-year timeline.
“Our timeline is there or thereabouts, but whether it ends up being this side of the 31st or the other side of the 31st, I can’t really get into.”
So far, Indian gas giant GAIL Ltd., a state-run gas utility, is the only company to publicly express interest in buying Repsol’s LNG assets, voicing plans to convert Canaport from an import to an export facility.
If GAIL ultimately attempted to close a deal to become the Saint John facility’s new majority owner, it may be subject to tougher federal rules after the December approval of a Chinese national offshore oil company’s $15.1-billion takeover of Nexen Inc. of Calgary.
Prime Minister Stephen Harper promised after approving the deal to get tougher on future foreign takeovers.
The newly revised foreign investment rules bar takeovers of oilsands producers by state-owned enterprises, except under “exceptional circumstances.”
It also includes new foreign investment guidelines across the board.
The minister of industry now has the ability to extend the time available to conduct a national-security review of proposed investments.
In other areas, the review process was relaxed: the threshold for review under the Investment Canada Act for takeovers by foreign private investors has been increased to $1 billion from $330 million.
The $330-million threshold will remain in place for state-owned enterprises.
“It would fall under the new rules,” Oliver said of a potential foreign purchase of the Saint John LNG facility in an editorial board meeting with the Telegraph-Journal. “The new rules distinguish between state-owned enterprises and the private sector and they distinguish between the oilsands and other investments.
“This is not an oilsands investment, this is gas, so it wouldn’t fall under the principle that the SOE approval would be truly exceptional.”
He added: “It falls under the general rubric that it would be looked at, it would be scrutinized, and if it is over $330 million then it would be examined to determine whether it is in the national interest.
“The new rules would apply in that regard.”
Repsol’s LNG holdings include a 75 per cent stake in Canaport, a 23 per cent stake in a plant in Trinidad and Tobago, a portion of a re-gasification plant in Spain, and a 20 per cent stake in a liquefaction plant in Peru.
The Spanish company is selling its LNG assets mainly to reduce its debt and preserve its credit rating.
The Canaport LNG facility started operating in June 2009 after receiving its first shipment of liquefied natural gas from Trinidad and Tobago. Repsol owns a majority stake in the firm. Irving Oil Ltd. controls the remaining 25 per cent.