Joint ventures and partnerships open door to global liquefied natural gas market: Ernst & Young

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(Calgary, 10 May 2012) Joint ventures (JVs) and partnerships could make all the difference between capitalizing on global liquefied natural gas (LNG) opportunities in Asian demand markets and losing ground to foreign suppliers, says a new Canadian EY report.

According to the new report, Rising to new challenges in the face of global demand: liquefied natural gas in Canada, countries around the world are capitalizing on Asian LNG demand and fast becoming powerful threats to potential Canadian market share.

“Total Pacific basin demand is expected to rise from 120 million metric tonnes today to 241 million metric tonnes per annum in 2020, and exporters in Australia, Russia, Malaysia and Qatar have been quick to respond,” says Lance Mortlock, of EY’s oil and gas practice. “These countries are already well on track to developing the necessary infrastructure to fulfill the needs of this expanding market — leaving little room for Canada.”

Seven US LNG terminals have also been filed for application, which, if approved and built, could put them ahead of Qatar in export capacity, changing the regional dynamics in Asia significantly.

While Canada has immense domestic gas reserves, it lacks the population to consume supply. Now add reduced demand from the US — Canada’s only external customer — following the shale boom as well as sustained low gas prices, and Canada is facing limited opportunities for LNG development.

“To avoid losing out on opportunities in emerging demand markets, Canada must accelerate infrastructure development, seek new capital sources, and tie down long-term customers,” says Mortlock.

An estimated CDN$50-billion industry investment is expected to be needed over the next 5 to 10 years if Western Canadian producers are to take full advantage of opportunities in Asia. But LNG projects can be too big and too risky for companies to tackle on their own.

Pursuing JVs and partnerships will allow Canadian companies to accelerate their LNG plans. However, with JVs and partnerships also come many complexities. Companies must consider the various aspects of their business operating model, including strategy, business processes, information systems, structure and governance, leadership people management and corporate culture. All will be critical for success.

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