Energy company buy lengthens LNG wait

Royal Dutch Shell's takeover offer to British company BG reminds one of the saying, “The time to buy is when there’s blood in the streets.”

Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying “The time to buy is when there’s blood in the streets.”

Clearly Royal Dutch Shell is of like mind, as evidenced by its takeover offer to British company BG of US$70 billion.

That translates to a premium of 52 per cent on what BG shares were trading at when the announcement was made, making it an offer BG’s shareholders can hardly refuse.

(This may sound like an eerie echo of Rio Tinto’s successful over-the-odds takeover of Alcan, but there is one big difference: Rio Tinto did that at the top of the aluminum market while Shell is making its move at the bottom.)

Predictably the all-knowing, all seeing analysts are divided, some saying the price is way too rich, others that it makes sense.

Not that I think Shell much cares about what the analysts say. It clearly thinks this is a smart move and, given its long, successful track record, who am I to disagree?

One interesting development in the wake of the announcement was the ringing endorsement the deal got from a surprising source, Qatar, the number one LNG exporter in the world.

The state-owned Qatari Investment Authority bought 67 million shares in Shell and another 12 million in BG at a total cost of $US2.3 billion.

Now that is a vote of confidence on a grand scale.

So what does this takeover mean to proposed LNG export projects in the Northwest?

Obviously the proposed BG plant at Prince Rupert is dead given that Shell’s LNG Canada project in Kitimat would be significantly less expensive – it would be built on an established industrial site (former Methanex methanol plant) and the length of pipeline needed to feed the plant would be considerably shorter.

That said, I never thought the BG proposal was likely to come to fruition, dismissing it as another example of piling on.

Does it improve the chance of a favourable final investment decision for LNG Canada in the short term? I suspect not and in fact fear it may even push back any such decision.

First, the proposed takeover has to receive regulatory approval from the countries in which both companies operate. While I don’t think that will be a problem – with the possible exception of Australia – it will take time.

Second, it is expected that it will take about a year to figure out the configuration of the “new” company and I cannot see Shell making any final investment decision until this and item one are sorted out.

And third, having just spent $70 billion on the takeover, are Shell going to be in a great hurry to take on more billions of capital expenditure?

Like Snow White’s prince, one day LNG Canada will come, but it may be a bit later than we would like.

Still on the subject of LNG I read with interest the story in the April 29 edition of this newspaper in which David Hughes, a consultant with 35 years experience with the Geological Survey of Canada, threw a wet blanket over the lofty predictions of a BC LNG boom. Specifically the idea that there would ultimately be 18 LNG plants on the North Coast was nonsense.

With all due respect, that wasn’t actually a revelation. Anyone who has been following the LNG story – and isn’t taking the same hallucinogenic drugs as Christy Clark and company – has known that for some time.

But he did raise one very important point that is too little talked about: “The amount of natural gas available in major reserves in northeastern BC … is greatly overestimated by the Christy Clark government.”

The National Energy Board annually produces numbers on natural gas reserves with the big number being “estimated” reserves.

But they also give numbers for “proven” reserves and then break it down further into proven reserves that can be economically developed at current prices.

Numbers I saw in 2013 showed proven and economical reserves were 20 per cent of the grandiose estimates.

Retired Kitimat Northern Sentinel editor Malcolm Baxter now lives in Terrace, B.C.