Managing Director and Chief Executive Officer’s Report
Fiscal 2016 was dominated by: (i) volatile oil markets having a downward trending bias that negatively impacted price and demand for crude oil, LNG, and natural gas, constricting capital flow into the energy sector; (ii) geopolitical uncertainty impacting key energy producing countries in the Middle East and elsewhere that heightened risk of energy market disruption; (iii) continued fragile economic recoveries worldwide and in countries having historical high LNG consumption that drives uncertainty in decision making by buyers and sellers of LNG; and (iv) increasing activist success in slowing or cancelling energy infrastructure projects that further exacerbates realisation of efficient markets.
Against this backdrop, during fiscal 2016, LNGL materially advanced its North American opportunities, further establishing a foundation for growth and success.
Fundamentally, LNGL believes in long-term global demand growth for natural gas and sees the market becoming short supply beginning in 2021/2022. We believe that North America will continue to grow its significance as an LNG exporter to world markets reflecting the material low-cost natural gas reserves available, dominated by shale resources. We expect greater geographic supply options for buyers including suppliers from Canada competing against US, Australian, African, Middle Eastern, and other supply sources. Likewise, we see current market dominance by a few buyers dissipating over time as world consumption of natural gas broadens. The U.S will continue to be viewed as a favourable regulatory environment but we hold an expectation that timelines associated with FERC and other regulatory approval processes will likely elongate from current precedent.
We see climate change legislation influencing future buyer behaviours contributing to increasing natural gas demand. Finally, we believe that the future of LNG liquefaction is mid-scale facilities that will be lower cost, scalable, modular designs that place a premium on reliability, efficiency, and reduced environmental impacts.
We believe our Company is uniquely positioned to provide relief at the front part of the 2021/2022 demand window reflecting the advanced approval stage of our two North American projects – MLNG and BHLNG – which combined can deliver up to 16 mtpa of liquefaction capacity into the market in this timeframe and up to 20 mtpa or greater by 2024, under existing permits. Given the construction period timelines for new liquefaction facilities, we see a finite amount of liquefaction capacity available to compete with MLNG in this timeframe due to timelines remaining for other North American projects to achieve regulatory approvals.
Further, because of a lack of profitable indigenous markets and economic, environmental, fiscal, and activist opposition to west coast Canadian LNG projects, we believe BHLNG is extremely well positioned to monetise stranded Western Canadian shale resources, as well as production from conventional sources in Western and Central Canada, resources offshore Nova Scotia, and from Marcellus and Utica shale production.
The following key highlights realised during the year reflect the advanced status of our North American liquefaction projects as well as other Company milestone progress.
– US FERC Order authorising construction of the MLNG project
– MLNG agreement with KSJV on a binding LSTK EPC contract for US$4.345 billion for the full 8 mtpa or greater facility, with price validity through December 2016
– Global alliance arrangements announced with Chart Industries (Chart), Siemens Energy Inc. (Siemens), and EthosEnergy Group (EthosEnergy) that provide key materials, components, and services to the construction and operation of MLNG and, potentially, other future LNGL opportunities
– Clough-CH.IV selected as owner’s engineer for the MLNG project
– MLNG extending its binding agreement with Meridian LNG through December 2016
– BHLNG receiving its export license from the National Energy Board (NEB) for export of 8 mtpa beginning in 2019, with expanded authority to 12 mtpa in 2024
– DOE authorising BHLNG to export LNG derived from US produced natural gas to Non-FTA countries
– BHLNG acquiring additional land surrounding its existing owned site to ensure sufficient land access for the full 12 mtpa planned project
– BHLNG receiving approval for its Greenhouse Gas (GHG) and Air Emission Management Plan from Nova Scotia Environment (NSE)
– Bear Paw Pipeline project (Bear Paw) receiving “Approval to Construct” from the Nova Scotia Utility and Review Board (UARB) and progressing plans for the lateral pipeline required to connect BHLNG to the mainline gas header at Goldboro, Nova Scotia
– Extension of the FLLNG lease through March 2017. As previously stated, our immediate focus is on signing sufficient investment-grade offtake agreements to take FID, and move to financial close, construction, and operation of MLNG and then BHLNG. We remain vigilant in managing our cash position in a fiscally responsible manner and we remain on track to extend this cash position into 2019, consistent with our cash management plan.
BUSINESS DISCUSSION AND ANALYSIS
The following discussion and analysis of our operations, financial condition, and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Annual Report (refer to link below).
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About Liquefied Natural Gas Ltd
Liquefied Natural Gas Limited (ASX:LNG) (OTCMKTS:LNGLY) (LNGL) is an ASX listed company whose portfolio consists of 100% ownership of the following companies:
– Magnolia LNG, LLC (Magnolia LNG), a US-based subsidiary, which is developing an 8 mtpa or greater LNG export terminal, in the Port of Lake Charles, Louisiana, USA;
– Bear Head LNG Corporation Inc. (Bear Head LNG), a Canadian based subsidiary, which is developing an 8 mtpa or greater LNG export terminal in Richmond County, Nova Scotia, Canada with potential for further expansion;
– Bear Paw Pipeline Corporation Inc. (Bear Paw), proposing to construct and operate a 62.5 km gas pipeline lateral to connect gas supply to Bear Head LNG;
– Gladstone LNG Pty Ltd, a subsidiary which plans to develop the 3.5 mtpa Fisherman’s Landing LNG (FLLNG) project at the Port of Gladstone in Queensland, Australia; and
– LNG Technology Pty Ltd, a subsidiary which owns and develops the Company’s OSMR(R) LNG liquefaction process, a mid-scale LNG business model that plans to deliver lower capital and operating costs, faster construction, and improved efficiency, relative to larger traditional LNG projects.
Liquefied Natural Gas Ltd
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