Impasse deepens over B.C. LNG tax as Shell warns 7% levy not globally competitive

Financial Post | Business

Royal Dutch Shell Plc is leading an industry pushback against the scope of British Columbia’s proposed tax on liquefied natural gas exports, extending a standoff over fiscal terms for the upstart sector.

The B.C government this week announced a two-tier tax structure for the industry as part of the provincial budget. Under the scheme, profits from LNG plants will be taxed at an initial rate of 1.2%, with rates climbing as high as 7% once companies recover capital costs associated with building the multibillion-dollar export terminals.

The B.C. government said the rates are competitive with rival export jurisdictions in Australia and five U.S. states, including Alaska, Texas and Louisiana.

We’ve been clear that the rate needs to be globally competitive if B.C. is to build an LNG industry

But Shell on Wednesday questioned that assessment, deepening an impasse that has delayed final investment decisions and threatened to snuff out a…

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Unconventional Oil & Gas in Mexico–Can Mexico Replicate US Eagle Ford Success?

Australia ‘at the forefront’ of fracking development

Informa Insights

Shale_Tight_Gas_imageAustralia has been posited as the top destination for fracking development, beating stiff competition from a number of international rivals.

New analysis from Lux Research noted that while North America has led the charge before now, the rest of the world is keen to get on board by taking advantage of shale gas and tight oil resources.

The organisation highlighted how well Australia is positioned, claiming that it has the highest market attractiveness and the clearest path to commercial production among competing nations.

“Key factors like existing infrastructure, low population density in resource-rich regions, and a welcoming government positions Australia at the forefront of shale development,” the company stated on its blog.

“China and Argentina are close behind, although the former remains plagued by poor infrastructure, local turf wars, and challenging geology, while the latter retains elements of instability both economically and politically.”

Despite showing some promise, countries such as…

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Natural Gas vs Other Fuels: A Comparison

CNG Transport

natural gas signThere are over hundreds – possibly thousands – of natural gas transportation ships around the world, attesting to the fact that the fossil fuel has certainly garnered the attention of a lot of oil and fuel firms around the world. Like other fuels, it is capable of powering machines like electrical appliances, cars, generators and stoves. That said, how does it fare compared to other types of fossil fuel? Well, let’s cut to the chase and learn what we all need to know:

Natural gas vs liquefied petroleum gas (LPG)

Natural gas transportation ships do not transport LPG. Why? Well, that’s because LPG is different from natural gas, contrary to a lot of people may believe. Natural gas is mainly composed of lighter gases, namely ethane and methane while LPG is composed of heavier ones like propane and butane. These have different combustion characteristics, meaning one cannot simply be…

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We are Going to Use More Natural Gas for Trucking, But How Much?

Thinking On Energy

I wanted to see what the latest thinking was on the future of natural gas as a transportation fuel and looked to the new Energy Information Administration’s latest Energy Outlook that was released Dec 16th.   This 30 year forecast is updated annually to factor in new information and trends and certainly the use of natural gas in transportation has evolved a lot just in this past year.

With the launch of a new heavy duty natural gas engine from Cummins that is now going mainstream the demand for both Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) is poised to grow.  The question is how much and how fast?

Well looking first at the next five years we can see that the existing use in Automotive and School Bus applications is fairly flat.  The growth is expected to be Transit Bus use where we have a proven workhorse…

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IEA: Russia Likely to Benefit from Shale Revolution

Alphaenergy Belgrade

The steep growth of shale gas production in the US and other countries known as the shale revolution means not only risks but new opportunities for Russia, IEA chief economist Fatih Birol has said. He said that the leading suppliers of natural gas have been losing their former role as a result of the shale revolution. 

Russia may face more competition due to the continuing diversification of supplies and the emergence of new exporters such as Australia and North America, as well as new suppliers of natural gas.

At the same time, said Birol, the continuing development of unconventional gas resources is likely to increase trust in gas as a reliable energy source so the role of gas in the global energy supply structure is set to grow. This is good news for such big suppliers as Russia, said Birol.

He also opined that as a result of the shale…

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US shale revolution puts squeeze on European chemicals groups

The recent rapid expansion of the US natural gas sector is edging European producers out of the market and forcing them to focus increasingly on speciality products to stay afloat.  With the cheaper US produce, European businesses and operations will have to be creative and focusing downstream.

The US shale gas revolution is forcing a redoubling of efforts by European chemical producers to move away from low-margin petrochemicals and focus on higher margin speciality products.

European petrochemical makers risk being squeezed between low-cost producers in the Middle East and a resurgent chemicals industry in the US, where feedstock and energy prices have plummeted following shale gas discoveries.

After a decade of almost zero capacity expansion in US petrochemicals, shale gas has prompted the likes of Dow Chemical, LyondellBasell, Chevron Phillips and ExxonMobil Chemical to invest billions of dollars in ethane cracker capacity on the US Gulf Coast.
Fresh US supplies of petrochemicals – primarily ethylene derivatives such as polyethylene and PVC – will hit global export markets in coming years. Meanwhile, Middle Eastern chemical companies that have long had a big feedstock and energy cost advantage over Europe may struggle to export to a more competitive US and seek European customers instead.

Environmental concerns and greater population density have so far prevented Europe developing its own shale gas reserves, which threatens to leave European chemical producers at a competitive disadvantage in the near term. Natural gas prices in the US are roughly a third of the Europe price.

In Europe, petrochemical companies tend to run costly, crude oil-derived naphtha crackers. Although some economists believe that crude oil and natural gas spreads will eventually narrow, US companies are cashing in.

Bernstein Research estimates that the combination of high oil prices and cheap gas has boosted the profits of US chemical companies running ethane crackers by an annual $6bn, or roughly 14 per cent of the entire US industry’s profits in 2011.

Paul Hodges, chairman of industry consultancy International eChem, says there is “a real fight to the death going on in core [petrochemical] export markets such as PVC between US and European producers”.

“US producers have grasped they have a cost advantage, and being good Americans they are running as hard as possible with it.”

Standard & Poor’s says European producers would “need to respond to this change in industry dynamics with a range of decisive measures aimed at improving production efficiency and improving their cost positions”.

Belgian-based Solvay is dealing with US competition and weak demand in Europe’s polyvinyl chloride (PVC) market by folding its PVC assets into a joint venture with those of rival Ineos. Solvay plans to exit the agreement in a few years.

Jean-Pierre Clamadieu, Solvay chief executive, said the move partly reflected the “competition coming, especially from North American producers, which are benefiting from very privileged access to energy and raw material.”

Germany’s Lanxess is set to cut 1,000 jobs by the end of 2015 in response to a fall in demand for synthetic rubber from the automotive industry. About 40 per cent of the company’s sales are linked to the automotive and tyre industries.

“Lanxess is suffering at the moment from the temporary market weakness in tyres and more broadly in automotive,” Axel Heitmann, chief executive, tells the FT. “We’re focused more than ever on technology and innovation because high-end products are less cyclical and less affected by pricing pressure.”

However, the rise of Middle East and Asian rivals over the past decade long ago convinced European chemical companies that they cannot succeed in commodity chemicals.

That triggered years of restructuring and careful portfolio management that continues to this day to counter the challenge from Chinese companies that are striving to make more complex intermediates rather than just basic chemicals.

“Most have moved downstream in Europe to protect their position. They’re moving into speciality areas which are much more technology and customer focused,” says Anton Ticktin, partner at Valence Group, the specialist chemicals advisory firm.

In an example of such customer focus, BASF recently struck a partnership with Adidas to supply special foams with a unique particle structure that helps a running shoe absorb impact and give it spring.

Kurt Bock, chief executive of Germany’s BASF, believes the world’s biggest chemical maker by sales will remain competitive in spite of shale developments as it has largely exited ethylene-based chemicals.

Still, European chemical producers know they cannot ignore developments in the US and all insist Europe must do something about its competitive position in energy or risk investments going elsewhere.

Energy costs can account for more than half of the production costs of chemical companies. Ineos’ ChlorVinyls plant in Runcorn, for example, uses as much power as the neighbouring city of Liverpool.

Tata Chemicals in October said it would shut a soda ash plant in Northwich in the UK, with the loss of 220 jobs after energy prices more than doubled in the past few years.

However, European chemical companies are not leaving their US rivals to enjoy all the benefits from low feedstock and energy prices

BASF is converting a naphtha cracker in Port Arthur, US to run on ethane. Meanwhile, Linde, the German industrial gases company, is to invest $200m at a site in Texas to create the world’s largest natural gas based gasification complex for syngas chemicals.

Moreover, the jury is still out on whether the huge expansion of US chemical production will pay dividends in the long term.

“My outlook for European chemical industry is not terribly depressed as I don’t believe there is any sound fundamental reason for the divergence between natural gas and crude oil prices,” Mr Hodges, the consultant, said.

“The US is adding 10m tonnes of export-orientated ethylene capacity . . . But who are they going to export it to? I believe they are doomed to fail as there is no market for it.”

By Chris Bryant of the Financial Times

The full article is visible via the link below – Pankaj Oswal