The progression of an LNG project - Canadian LNG Projects - www.pwc.comca/energy
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www.pwc.com/ca/energy
The progression
of an LNG project
Canadian LNG Projects
and how our extensive Canadian LNG Projects
global LNG experience
can help you assess
and manage your LNG
projects
Canadian LNG projects Approved Canadian LNG export projects (listed in order of NEB filing status) Project Planned capacity (mtpa) Proposed start date NEB approval Kitimat LNG 10 2017 Approved BC LNG Export Cooperative (Douglas Channel) 1.8 2015 Approved LNG Canada 24 2019 Approved Pacific Northwest LNG 12 2019 Approved West Coast Canada LNG 30 2021–2023 Approved Prince Rupert LNG 32 2020 Approved Woodfibre LNG 2.1 2017–2021 Approved Triton LNG 2.3 2017 Approved Aurora LNG 12 2021–2023 Approved To date, two further projects involve export of gas to the U.S. and nine further projects are pending with the NEB. Source: National Energy Board PwC Canada has extensive local and global experience to help joint venture partners to select, evaluate and progress with their investment choice.
LNG: An overview of growth
Liquefied natural gas has become an important part of the
global energy supply chain. Currently representing just over
10% of natural gas volumes delivered, LNG is now exported by
18 countries and imported by 27. Many more are preparing or
considering both exports and imports.
Canada is new to the LNG sector, one of the The majority of the LNG projects with export
countries presently gearing up to export licenses are West Coast based, taking advantage
product to Asia, and perhaps beyond. Over of the relative proximity of British Columbia’s
the last few years, and more particularly in the shale gas basins, an integrated North American
past year, export licenses have been granted by gas market and the relatively short distance to
the Canadian National Energy Board to several the Asian market.
LNG developers.
With a global supply gap forecast of
This sudden surge in project development approximately 150 million tonnes per annum
has been brought about by changes on (mtpa) by 2025, Canada’s planned LNG project
global demand, market changes in North capacities total more than that amount. The
America and abundant natural gas resource conclusion would be that not all the Canadian
availability in Western Canada. These factors developments will successfully move forward.
have combined to boost an emerging industry
that will compete for market share with other
established producers or new entrants.The major Canadian projects are mainly with First Nations and familiarity with the
integrated, meaning the feedgas supply comes various gas formations make the Canadian
from within the consortium that develops LNG industry somewhat different from other
the LNG project. This is in contrast to the US jurisdictions.
approach where the gas is sourced from the
PwC Canada has assisted several joint
open market and a tolling fee is charged to
venture partners with an appreciation and
liquefy it.
understanding of these unique characteristics
For joint venture partners, evaluating and of the Canadian LNG sector and advised those
selecting the right project then becomes a partners how to execute the business plan and
matter of some importance. Certain unique avoid potential issues in the future.
elements, like consultation and participationThe timeline, level Breaking down what’s involved
of effort and cost in an LNG project
Broadly, for Canadian LNG projects these The complexity of major LNG projects is reflected in their time Evaluating a potential LNG project is
events and activities fall into two distinct scales to completion. It is not unusual for an elapsed time of a difficult undertaking. Historically,
10 years between inception and first gas delivery, especially
project phases: pre-Final Investment Decision completed LNG projects have been
when greenfield projects are contemplated, where no previous
(FID); and post-FID. Whereas an owner has complex, reliable, operationally sound,
infrastructure exists to shorten the construction period.
to follow the sequence in its entirety, a joint profitable, but always very challenging
venture partner can opt in at several points. to move from inception to operation. No
The elapsed time is roughly equally split between
pre- and post-Final Investment Decision: two are the same, as the commercial and
PwC is able to assist with both the pre- and 5 years technical aspects vary from project to
post-FID activities and help you consider the
project and from country to country.
risks and rewards that accompany a major
2 years 2 years FID
LNG project. Unlike many other capital 1 year However, it is possible to break down the
projects in the oil and gas industry, these sequence of events that must occur during
projects must spend a considerable amount Feasibility Pre FEED FEED Construction the progression of the project and the major
of time, effort and money before the final inputs that contribute to the final decisions
investment decision is made. From experience with actual projects, the level of effort and and results. This systematic approach is
spending can also be approximately quantified as follows: required to ensure confidence in the project,
PEAK STAFFING ~200 400–500 500 + 6,000+ as each segment of the LNG value chain is
Cost estimates Tens of Hundreds of Billions Tens of planned, assessed and sanctioned.
millions millions billions
FID
Feasibility Pre FEED FEED FID Construction
As a rule of thumb 1 trillion cubic foot (tcf) of proven
gas reserves is required for every 1 million tonnes per
annum (mtpa) liquefied for a 20 year period.The progression of an LNG project
Pre-FID Post-FID
The lines of inquiry that might accompany each pre-FID activity could include the following types of questions and topics: Similar topics for the post-FID activities might include these types of questions and topics for consideration:
Feasibility: is the Memorandum of Commerciality: Markets: what Pre Front End Permits: what are Location: where Reserves: can the Sales and FEED: engineering Finance: meeting Pipeline build: EPC contracts: Drilling: providing Construction: Utilities: mostly Marine Liquefaction Commissioning: Operations: Shipping: securing Regasification:
initial idea sound and can Understanding: what structure will it are seen as the possible Engineering the legal, regulatory and exactly can we site the capacities be backed up Purchase work to cost project for lenders criteria for not always an easy task execute contracts awarded the production required greenfield situation for greenfield builds and terminal: size, plant: major capital standard post-build long term operational LNG carriers and rates, or end user facilities either
a value chain be built? establishing the basic take to make money markets and sales prices? Design (FEED): permitting requirements? marine and onshore by proven gas reserves? Agreements accurate decision making financing in Canada pre-FID based on FEED for feedgas Canadian LNG projects installations on the timing of construction of expenditure and labor procedures capability, in some cases taking delivery of custom expansion of existing, or
parameters for partners and defer risk? progression of technical facilities for the project? (SPAs): initial and tendering input West Coast coastal facilities sourcing with train additions built boats new plants
to proceed work to the next level agreements with LNG off
of detail takers to guarantee sales “Will the project run
“When should First “Will the timing of the “How will the shortened “What exactly will the “How much power can “Should this be built early “What are the economics “What are our risks at “What does the forward “Are we working with
“What are the “Has the right project “Has the allocation of risk “What are the future “How site specific are “Are there likely to be any “What local issues must be “Has the availability of “What are the risks “Are we confident that “Do we have an Nations be first engaged long lead items delay Western Canadian drilling construction and labor the local grid supply, or so that complete process of adding future trains?” this stage and can they be successfully to ensure market for LNG carriers the optimal tariffs for
unavoidable local issues structure and correct between the participating global LNG supply and our costs?” significant changes in the taken into consideration in drilling rigs to prove up gas involved in the pricing the FEED work will investment grade and consulted over the project?” season affect feed gas situation be in Western do we have to generate units can be shipped in?” mitigated?” generation of revenues to look like?” regasification?”
that must be addressed?” range of partners been parties been satisfactorily demand characteristics?” regulatory or permitting the choice of a suitable site reserves been examined?” formulae used in the SPAs provide enough detailed project?” pipeline routes?” production and upstream Canada in these remote our own?” service debt and provide
chosen?” achieved?” processes?” for plant location?” to be signed?” information for an FID?” development?” areas?” returns?”
“How can we achieve “How will the agreements “Do we understand “ How will markets “Stick built liquefaction “What exactly are the ”How will the site “Will the shale gas fields “Do the SPAs ensure “Have all the risks been “What will be our “Should we own the “Was the FEED work “What is the local “How can we ensure that “What are the local “Will a breakwater or “Do we have a final “Has the commissioning “What is the best way to “What level of control over “Should the buyer or the
the lowest cost in the operate to create the the tax and regulatory evolve in the future?” plant or a modular permitting requirements chosen affect the local deliver the production that the project could surfaced and addressed?” overall cost of pipeline, or not?” sufficient to tender the level of acceptance of our schedule will be met regulations and standards dredging be required for assessment of the been carried out include local communities shipping is most suitable seller take responsibility
shortest schedule?” value chain?” regime in place?” design approach?” for LNG in British community going volumes required over proceed?” financing?” EPC contracts?” fracking techniques and and that we have all the regarding utilities the chosen site?” environmental and satisfactorily to ensure in the operation of the – charter, ownership or for delivery?”
Columbia?” forward?” the time period to be procedures?” right controls in place and operation?” social impacts?” efficient and effective plant?” avoid participation in
contracted?” working correctly?” future operation?” transportation?”
How we can help with pre-FID and post-FID activities PwC can also provide the following services for pre-FID and post-FID activities
PwC’s experience in the LNG industry can be of assistance to developers or joint venture partners wanting to evaluate PwC’s experience can be of assistance to developers or joint venture partners wanting to evaluate Canadian LNG projects.
Canadian LNG projects. We have provided the following services to projects proponents on a global basis:
Domestic tax International tax and Transfer pricing Indirect tax and GST Human resources services (HRS) and legal Accounting advisory Market assessment
Commercial structuring Due diligence and Tax structuring Carve-out Investment advisory Project assessment LNG model due diligence compliance and structuring Our transfer pricing practice Our indirect tax professionals can immigration and expat personal tax issues services We can help you understand the
draws from a global pool of 1,100 assist in determining what taxes business environment and strategic
and financing agreement negotiations The tax structuring analysis of an Analysis on behalf of new investors Support on the development of LNG External project advisory services PwC was engaged by a large publicly consulting services Our international tax structuring
professionals in more than 150 are imposed by a jurisdiction, We can help ensure your competitive payroll, compensation We specialize in complex
investment opportunities, bring
existing LNG regasification seeking into an existing LNG business being strategy in the context of expected in relation to the client’s world- listed energy company to perform professionals can help you to international assignment policies and benefits packages, manage the accounting matters to help you
The commercial structuring and The financial and tax due diligence We can help better manage tax countries to efficiently meet the whether the activities of a you a comprehensive overview of
new equity and debt financing to fund carved out of a corporate parent market development and trading wide LNG construction program, model due diligence on the financial structure your international are tax-compliant, meet the needs of risks associated with deployment develop a corporate response to
financing of LNG import terminals and in connection with an investment to risk through timely filings, reduce cross-border tax challenges of company are enough to subject the issues, challenges and thought
the development and construction of into a new entity which intends to options. We compared and contrasted including assessments on projects in model and supporting assumptions business in a tax efficient manner, the business and are cost-effective. and help ensure you’re selecting technical accounting developments
competitive tender for LNG supply. This fund the proposed development and your internal resources spend on globalization. We can help you it to the tax, and how to either leadership specific to the Canadian
new LNG liquefaction trains; provided build a new LNG liquefaction facility. the economics of alternative China, the United Kingdom, Peru, developed for the purpose of obtaining both locally and globally. We can We can also help you with your the right staff for an international including the transition to IFRS
involved: market analysis and evaluation construction of an LNG liquefaction compliance, reduce your exposure establish and document the structure the company’s activities energy industry and connect you
the accounting and tax restructuring, Our work included analysis of the development schemes including the Australia, Chile, and Angola that financing for the development of help you construct effective cross- mobility delivery structure, develop assignment. accounting policies. We can
of demand for gas; constructing terminal within an entity operating to penalties, be abreast of the appropriate Canadian transfer to eliminate the tax or assist to networks and the right advisors
financial and tax due diligence in carve-out, labor matters, financial sizing of LNG regasification terminals were in excess of $6B. Our work its liquefaction facility. The model border strategies and manage help you evaluate and develop
a financial model of the proposed existing LNG regasification assets. most relevant information and pricing policies and evaluation of in complying with the filing such as lawyers and engineers.
connection with an investment in the and tax due diligence structuring and a range of options for future included a comprehensive review and included detailed cash flow and your global structural tax rate. accounting policies for both
project(s); economic assessment Our work included evaluating forecast control your compliance costs. tolling structures. requirements.
proposed development. and valuation of the assets to be capacity expansions; and undertook implementation of project control operational forecasts for each of conventional and unconventional
of the value chain; risk mitigation cash flows and working capital
contributed by the corporate parent. a market analysis of US and European tools related to cost, time, and change the natural gas liquefaction trains oil and gas operations.
requirements for project finance requirements; assessing the mechanics
LNG capacity, their expected future control; risk identification; schedule associated with the project, in addition
purposes; presentation of projects to of the financial model, including the
development and commodity analysis and advice on opportunities to overlays for the proposed financing
prospective lending banks/financial complex domestic and international
institutions; and financial structuring. tax attributes; renegotiation of existing
price forecasts. for performance improvement. structure and supporting credit metrics. Choosing the Valuations and IT infrastructure Financial and Integration Capital project Supply chain management
and preparation of new related right deal purchase price We can help you to select an operational We can help you identify the critical management Companies need to manage third- requirements with supplier
party agreements for operating and accounting information software integration points with your existing party costs by transforming the capability and focusing on
maintenance services, management
Our deals team will help you make allocation platform, develop vendor accounting business, create detailed action
Achieving schedule, cost and safety supply chain strategy, structure, performance. Effective category
the right acquisition that fits your goals on major projects has never process, people and technology, management also drives
services and involvement with With the largest in-house evaluations, establish fit for We’ll help you set up a master file plans to deliver value from the
business strategy. We’ll then assist been more important in terms of including categorizing external sustainable value and can create
investment agreements. actuarial practice of any Canadian purpose information systems to manage both acquisitions and deal, execute detailed integration
with determining the target and the market impact of failing to spending across the company. a higher level of compliance and
professional services firm, we’ll operations, prepare estimates on ongoing transactions, integrate plans, and enhance cost reductions
deal structure, and setting up a meet major project milestones. This will achieve balance visibility to enable contracts and
be able to offer strong support licensing and operational costs of capital expenditure accounting through supply chain analysis.
solid agreement. Whether it’s As the scale and size of projects between third party and in-house commitments to be managed
in determining the value of your software systems, establish effective with tax reporting, and prepare
entering Canada in a complete continue to increase, so do the capability and drive value by more effectively.
business enterprises, interests, information security practices to and analyze your budget.
control capacity, pursuing non- failure rates. Our capital projects better aligning the business
assets or liabilities. We can also mitigate cybercrime risks, integrate
operating transactions, joint specialists apply leading practices
help develop economic models with your existing corporate
ventures or a partnership, it and frameworks that can help you
and estimate the fair value of your systems and set up an information
requires a strategic approach. address challenges throughout
assets, such as oil and gas reserves, architecture that enables efficient
your capital project and realize the
resources and undeveloped land. access to critical information
outcomes you set out to achieve.
needed for decision making.There are multiple components to the When the Canadian LNG projects are compared
LNG value chain and typically the spend to this matrix, we would suggest that the
proportions would be as indicated:
upstream percentage will be higher. This will
Regasification Upstream development occur because of the need to feed the plants with
20% 10% shale gas from remote fields where little pipeline
infrastructure is in place and also to allow for
the high depletion rate of shale gas wells and
LNG transportation LNG plant subsequent higher drilling budgets. On the other
30% 40% hand LNG shipping costs will be lower as Asian
markets are relatively close to the West Coast.
Examining the LNG Plant percentage, this might be Liquefaction then is only 20% of total project
broken down as follows for a greenfield project: costs. A rule of thumb for Opex is 3% of Capex
Loading/Marine Pre-treatment
per annum.
10% 6% A leading energy consultancy company has
indicated that 6% of the Capex is spent pre-FID.
LNG Storage
18% So for a $30 billion project, $1.8 billion will be
Liquefaction
spent before a final decision to proceed is made.
50%
This is followed by the first year of construction,
Utilities mainly procurement effort and hence only 5%
16% of the project cost.
Indicative Capex for integrated LNG project
25% 3%
33%
29%
6% 5%
Pre-FID 1 2 3 4 5
Year
Source: PFC EnergyOur LNG experience
PwC has LNG experience in many countries around the globe
Canada Performed due diligence on the financial Wales Advice on the gas transportation
model and supporting assumptions developed infrastructure implications of locating LNG terminals
by the company for the purpose of obtaining over in Wales and the identification of gas transportation
$4 billion in financing for the development of a infrastructure investment requirements and
liquefaction project. The model included detailed calculation of tariff implications of additional
cash flow and operational forecasts for each of the investment.
natural gas liquefaction trains associated with the
Wales Assessment of risk at an LNG regasification
project, in addition to overlays for the proposed
plant, jetty and shiploading facilities as it related
financing structure and supporting credit metrics.
to engineering, procurement, construction and
Canada Assisted a large multinational in its commissioning of the terminal system works,
acquisition of a 10% interest in gas assets and encompassing civil, mechanical, piping, structural,
participation in a planned LNG facility in BC. buildings, and electrical and instrumentation work.
Our involvement included financial modeling,
valuation market comparisons, financial and
tax transaction assistance and diligence, tax
structuring, assistance with leading practice in UK Commercial structuring advice to an LNG
terms of accounting procedures for joint venture regasification project development company,
agreements, IFRS accounting advice for proposed assisting them to evaluate the advantages
transaction, and transaction and agreement advice. and disadvantages of selecting a downstream
participant for the project, while considering the
Canada Developed a financial model to assist the
overall process for selection, and analysing the
client in assessing a contemplated acquisition of
various options for structuring the company’s
an interest in Canadian shale gas assets and the
participation in the project.
proposed LNG export terminal.
UK Provided advice on project structuring for
Canada LNG modelling, accounting and tax
an LNG facility, including review of joint venture
services for various proposed pre-FID investors.
agreement and evaluation of commercial drivers
for each party to the agreement.
UK Lead advisor to an oil-products storage
North America Advisor on LNG from Russia to company, evaluating a greenfield LNG import
US and Canada. It involved a feasibility study and facility in the UK.
project structuring to enable finance-raising. The
areas covered included: LNG liquefaction, shipping,
regasification and gas marketing. US Provided continuous external project
assessment services to a major EPC
vendor in relation to its global LNG
Colombia Served as a lead advisor to a consortium construction program.
of utilities developing the first liquefied natural gas
regasification terminal in Colombia. Provided advice
throughout the tender and procurement process, Algeria, US, UK Investment advice to a
including: proposed enhancements to the terms of major international energy company on the
reference; performed a comparative risk analysis development of a multinational LNG project,
of proposed facility configurations focusing on including evaluation of alternative development
risks to meeting commercial operation date and schemes, LNG regasification terminal sizing and
to maintaining operational reliability/availability; location, arbitrage evaluation, and analysis of
conducted bidder interviews; identifying risks US and Europe market capacity and prices.
related to each technical proposal; and supported
contract negotiations.
Middle East, Europe, US Investment advice
Peru Provided observations and recommendations to a major international energy company on the
for the development of project management tools development of a multinational LNG project. The
and procedures where current gaps exist and made assignment included evaluation of alternative
recommendations for changes or improvements to development schemes, LNG regasification
processes and/or controls where appropriate at the terminal sizing, contract advice for further capacity
liquefaction plant and marine facilities. expansions, analysis of US and Europe market
capacity and prices, and valuation of portfolio
options for LNG swaps.
Chile For the owners, validated time and cost
projections and conducted an analysis of the
outturn cost forecast and likely profit or loss
position at an LNG regasification and send-out
system, including marine jetty with complete ship
unloading facilities and storage tanks.Italy Investment advice to a major international Lithuania Preparation of a feasibility study
energy company on the development of a for the development of the country’s first LNG
regasification terminal and downstream business import terminal, involving feasibility analysis from
in Italy, involving assessment of the development a technical, environmental, legal, commercial,
of the market, and valuation of various contract demand-side and supply-side perspective and
schemes for the terminal, i.e. tolling arrangement, included providing a road-map for the subsequent
integrated value chain. development of the project.
China Provided project assessments at a
regasification import terminal related to project
control tools implemented on projects with respect
to cost, time and change control to identify areas
of risk and advice on opportunities for performance
improvement.
Middle East, India Investment advice to a major
international energy company on the development
of a multinational LNG project, including risk
assessment of end user market in India, LNG
regasification terminal capacity and upgrade sizing,
and optimal upstream supply from various LNG
production alternatives in the Middle East.
Egypt Lead advisor to an LNG company for the
export of LNG from Egypt to Europe. Completed a
feasibility study developing the entire value chain
from upstream gas production to liquefaction,
shipping, LNG regasification and gas marketing.
The assignment included commercial structuring,
partner selection and raising finance.
Oman, Nigeria, Australia Assessment of gas
reserve quantities and commercial arrangements
for a number of LNG feedstock contracts.
Angola Reviewed tools and procedures in
place on LNG projects to monitor adherence to
contract requirements and to manage project
risk highlighting strengths and potential gaps
in the existing systems and controls. Provide
periodic inspection to ensure that risk is being
properly managed and mitigated through the
project life-cycle.
Australia Valuation of a proposed LNG project Australia Valuation assessment of a major LNG Australia Review of a financial model of an LNG
development to support a proposed bid for an project for tax purposes relating to a restructure project for valuation and reserve reporting.
interest in the project. of the project.
Australia Development of a financial model for
Australia Fair market valuation assessment of Australia Review of a financial model of a major an LNG project on behalf of the project operator,
an LNG project for the purposes of assessing the LNG project on behalf of an LNG customer which including the assessment of the impact of
starting base value of the project on transition acquired an equity interest in the LNG project. alternative project structures as well as proposed
into the petroleum resource rent tax (PRRT) Review of PRRT modeling to assess the deferred changes in the applicable tax and regulatory
regime. tax asset that is to be booked by a project regimes to support investment decision making.
participant in relation to un-deducted historical
Australia Valuation of a proposed coal seam gas
expenditure as a result of a final investment decision
LNG project development on transition into the
for the development of the LNG project.
PRRT regime which was extended to onshore oil
and gas projects.Our experts
For a discussion on opportunities around LNG in Canada, please contact:
General inquiries Audit and Assurance services Consulting services
Reynold Tetzlaff Shannon Ryhorchuk Matthew Wetmore
National Energy Leader Calgary AAG Site Leader Calgary Consulting Leader
403 509 7520 403 509 7506 403 509 7483
reynold.a.tetzlaff@ca.pwc.com shannon.g.ryhorchuk@ca.pwc.com matthew.b.wetmore@ca.pwc.com
Calvin Jacober John Paul Pressey Michel Grillot
Calgary Managing Partner Vancouver AAG Site Leader Partner
403 509 7531 604 806 7097 403 509 7565
calvin.b.jacober@ca.pwc.com john.paul.pressey@ca.pwc.com michel.grillot@ca.pwc.com
John DeLucchi James McLean
Managing Partner, BC Region Tax services Partner, Operations and Supply Chain
604 806 7575 Domenico Baruffaldi 403 509 7535
john.delucchi@ca.pwc.com National Energy Tax Leader james.mclean@ca.pwc.com
403 509 6676
Owen Taylor
domenico.baruffaldi@ca.pwc.com
Accounting Advisory services Partner
David Whiteley Angelo Toselli 250 298 5270
Partner Calgary Tax Leader owen.taylor@ca.pwc.com
403 509 6653 403 509 7581
david.c.whiteley@ca.pwc.com angelo.f.toselli@ca.pwc.com
Deals services
Scott Bandura Jason Durkin Clinton Roberts
Partner Alberta International Tax Services Leader Calgary Deals Leader
403 509 6659 403 509 7598 403 509 7307
scott.bandura@ca.pwc.com jason.d.durkin@ca.pwc.com clinton.l.roberts@ca.pwc.com
Brad Sakich Paul Sharp
Partner Partner, Valuations
604 806 7730 403 509 7550
brad.a.sakich@ca.pwc.com paul.w.sharp@ca.pwc.com
David Egan
Partner
604 806 7538
david.n.egan@ca.pwc.com
www.pwc.com/ca/energy
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