Oregon LNG project races B.C. rivals

A liquefied natural gas project in Oregon must find suitable partners as it strives to beat B.C. rivals in the race to be the first large exporter of LNG from the West Coast of North America.

Veresen Inc.'s Jordan Cove LNG venture has a prospective new partner, Energy Fundamentals Group Inc. (EFG), while other investors waiting in the wings include prominent Canadian hedge fund West Face Capital Inc., which has emerged as a surprise participant in the EFG-led consortium that is seeking to buy a minority stake in the project in Coos Bay, Ore.

The Ontario Superior Court recently ruled that EFG has the option to buy up to 20 per cent of the venture, siding with EFG in its legal dispute against Calgary-based Veresen. While EFG says that it has plenty of experience as a private investment firm focused on North American energy, Veresen wants its partners to have more experience in developing LNG projects.

If Veresen is able to resolve its differences with London, Ont.-based EFG, the Oregon project stands to become the first major LNG exporter from the West Coast of North America. If the battle continues, Jordan Cove LNG will be clouded by uncertainty and risks being stalled during a period of fierce global competition to export LNG.

There are 19 B.C. LNG proposals and two plans in Oregon – Veresen's Jordan Cove LNG and New York-based Leucadia National Corp.'s Oregon LNG Marketing Co. No final investment decision has been made yet by any of the 21 rivals in British Columbia and Oregon.

Pacific NorthWest LNG, led by Malaysia's state-owned Petronas, is widely viewed by industry analysts as the front-runner among major entrants striving to export LNG from B.C. Petronas and its four Asian co-owners placed their B.C. venture on hold in December. Petronas executives will visit Vancouver this spring for a project update.

On Feb. 23, the Canadian Environmental Assessment Agency asked the Petronas-led group to provide more information about the project's potential impact on a salmon habitat near the proposed LNG terminal site on Lelu Island in northwestern B.C. A federal environmental ruling on Pacific NorthWest LNG could stretch into July, pending further answers related to the impact of a planned suspension bridge over Flora Bank.

Jordan Cove LNG faces its share of challenges, but if it is able to reach a deal with the EFG-led group, then the Oregon project would be on a timetable to start exporting LNG in 2019, possibly months before Pacific NorthWest LNG's proposed launch for shipping 12.8 million tonnes annually.

One small-scale B.C. LNG project, Woodfibre LNG, is targeting first shipments as early as 2017, while another modest venture called Douglas Channel LNG is aiming for 2018 to begin exports.

Veresen is proposing to build a $5.3-billion (U.S.) export terminal that aims to ship six million tonnes of LNG annually to buyers in Asia. A large portion of the natural gas to be supplied to the Jordan Cove LNG terminal would come from Western Canada.

Dorreen Miller, Veresen's director of investor relations, said lawyers for the company are studying the Ontario court's decision. "We are determining our next steps, including an appeal," she said in a statement. "We believe the best partner moving forward would be one with experience in LNG projects."

Toronto-based West Face, which manages a wide array of assets valued more than $2.5-billion (Canadian), is an activist investor whose portfolio includes LNG projects in New York and England.

West Face declined comment, but EFG chief executive officer Todd Karry said his group wants to work with Veresen to develop Jordan Cove LNG.

"EFG, along with our partners West Face and Morrison Park Advisors, believes Veresen has made significant strides in developing the project thus far and we look forward to supporting the progress towards commercialization," Mr. Karry said in a statement. In 2005, Veresen (then named Fort Chicago Energy Partners LP) signed a deal that provided EFG with the option to acquire up to 20 per cent of Jordan Cove LNG, though the idea a decade ago was to import LNG.

"EFG remains a strong supporter of the project and looks forward to working constructively with Veresen," Mr. Karry said.

The Ontario Superior Court did not rule on whether EFG has the right to assign the option rights to others, notably West Face.

"Veresen argues that EFG has a financial partner – a hedge fund called West Face," according to the 20-page court ruling by Justice Michael Penny. "The existence of West Face as a possible financial partner with EFG raises, however, additional problems and concerns around if, and in what circumstances, EFG would be permitted to disclose confidential financial information received from Veresen to West Face."