CPABC Industry Update Summer 2014 - Page 10

Competition, Capital, and People (cont’d) taken strides to shutter all of its nuclear plants, we’ve seen a significant increase in German coal-fired power generation – in part made possible by access to relatively inexpensive (certainly compared to LNG cargos) US coal supplies that have been pushed out of the US because of regulatory and market pressures. While much of the current demand for LNG originates from Japan and Korea, it may be China that represents the largest potential buyer of future LNG. The Chinese government has already declared its desire to significantly ramp up its use of natural gas and reduce its overreliance on coal, which has caused very significant air quality concerns. In time, China expects to feed significant demand with its own shale gas resources but until that resource is developed, it is likely that Chinese demand for LNG will grow. Demand for natural gas in China could reach as much as 43 bcf/d [billion cubic feet per day] by 2030. Russian pipelines to China, LNG opportunities from Mozambique, and buyers’ efforts to break the long-standing oil-indexed-linked pricing mechanism also contribute to fierce competition at the global level. Canada’s Advantages  egulatory and market support for exports R • P • rojects led by global players (operators, customers) C projects • ost advantages vs. competing costs) (all-in transportation, operating P • articipants hold equity interests in gas S • table legal and fiscal business environment S • killed local labour market in Western Canada page 10 | I N D U S T R Y U P D AT E Capital Allocation The capital agenda continues to dominate discussion at the C-Suite and boardroom tables of the world’s leading oil and gas companies. Important strategic decisions around where, when, and how to raise, invest, preserve, and optimize capital have become increasingly challenging as companies struggle to achieve satisfactory returns and effectively manage risk. Canadian LNG projects will have to compete globally for capital against projects in many jurisdictions. For example, the significant capital requirements for pipelines, infrastructure, liquefaction facilities, and development of the required natural gas reserves for Canadian projects will have to compete with brownfield projects in the US where a far more developed infrastructure capable of supporting LNG exports already exists. For participants looking to grab some share of the multibillion dollar spend that will be needed to advance the BC LNG projects, the dynamics of this capital allocation process and the global organizations that are behind the projects add to the complexity. Where are the decisions being Canada’s Disadvantages  I nfrastructure required (facilities, pipelines, production, and civil) • C  • ost pressures (project construction, people shortages) G •  lobal competition E • volving pricing arrangements (oil price de-linking) C • omplex First Nations dynamics C uncertainty • ontinuingfiscal regimesregarding applicable