With the new tax breaks being introduced to the LNG industry in British Columbia, the industry is now looking towards the gas players and asking, who will make FID first?
To gain highly specialised expertise on the legal side of the gas industry and with the Canada Gas and LNG Exhibition and Conference taking place 14-16 May, Gastech Insights spoke with Executive Advisory Board Member and Partner at Farris, Vaughan, Wills & Murphy, Al Hudec.
Gastech Insights: With new models of LNG sales contracts, how are the traditional risk and liability allocations changing?
Al Hudec: The market is still in commercial flux. Smaller producers who need longer-term off-take agreements to support project financing are facing more seller hostile terms including five-year price review clauses that give less pricing certainty for suppliers and terms that give greater destination flexibility to buyers. The major producers are for the most part selling into spot markets and waiting for a reversion to more seller friendly terms that are expected to occur as markets tighten and new markets come on stream.
Gastech Insights: In your opinion, what is next for Canada’s gas and LNG industry?
Al Hudec: I expect positive FID decisions on the large LNG Canada and Kitimat LNG projects on the Haisla Reserve near Kitimat, each of which is fully approved and expected to be equity or balance sheet financed. Woodfibre LNG, a small project in Squamish, will probably also come on stream. As well as those, I expect to see an abundance of project proposals, focused the use of cheap gas other than through LNG export. We need to come up with other creative ways to monetise our abundant surplus gas reserves.
Gastech Insights: How do Farris, Vaughan, Wills and Murphy decide on the best structure when financing natural gas projects?
Al Hudec: The drivers are very fact specific. The cheapest alternative for larger proponents with a strong balance sheet and a high-risk tolerance is equity or balance sheet financing. Project financing requires de-risking of the project with completion guarantees, international style EPC contracts, long-term off-take agreements and often support from an export credit agency where the product is destined for a less stable market.
Gastech Insights: Why should industry players attend the Canada Gas and LNG Exhibition and Conference in May?
Al Hudec: It is only a matter of time before the growth of the Canadian LNG industry generates major opportunities for industry suppliers. Large new markets for LNG are coming on stream in the next few years.
This conference provides an important opportunity to get the information necessary to assess industry opportunities and risks, to build and maintain relationships with important industry players, and to encourage the evolution of governmental policies and regulatory regimes that are conducive to industry development and that is competitive with fiscal and regulatory regimes in other jurisdictions.
Image courtesy of Farris, Vaughan, Wills & Murphy