Returned overnight after attending the WGC Exhibition on Thursday (fortuitously on hols just up the road).
A GREAT 2 hours with members of the leadership team at the booth.
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Nothing like quality face time to get behind the headlines, the noise etc and really try to understand what's going on (to the extent possible). Whilst many industry articles broadly share the same conclusions (LNG demand increasing, China at the forefront, new LNG supplies required from 2022/3), they tell you only so much.
Walking the floor, talking to folks are other useful gauges. GV is not wrong: competitor booths are larger and far more expensive and there is plenty of noise as you would expect from the myriad of promoters. Each to their own.
Key insights I took away:
Many 'deals' announced are not bankable but akin to free options (e.g. VG and BP, Galp, Shell). Remember GNF & others several years ago).
On what basis have these been priced when there's no bankable EPC in place, the FERC process is still 12-18 months from completion? In other words, financial models are incomplete and banks have hurdle rates that must be met before they'll lend. Promote like hell by all means, but in reality these are free options and may come to nought.
Don't underestimate being fully FERC approved, shovel ready & with bankable EPC in place. As the FT commented, Magnolia is one of 4 (and the only greenfield project shovel ready). VG, Tellurian are both 12-18 months
behind. The FERC process cannot be short-circuited (was reconfirmed last year). Period.
Pricing - remains a key area of focus.
As someone said, perhaps we should lock 'em all in a room and let me them work out what the market price is. Immediate focus is on this dynamic which as we know, has revenue implications and must meet financing hurdles. However, buyers cannot remain on the sidelines for much longer given 2022/3 consensus and 4 year construction period.
China/ US trade war - Trump faces midterms later this year and is playing to his constituencies.
Increasing LNG exports from the US helps China replace coal (a major focus given chronic air quality or lack thereof) and makes a meaningful contribution to the trade imbalance (ditto Korea, Japan). Expect this to be resolved in the near-term. Until then, China won't sign under duress. GV met with members of Congress last week. As a reminder,
MLNG will generate $50bn in revenues over 20 years (or $2.5bn pa).
IDG - brilliant deal, SSHs congratulations esp. at a price above market. Credit to MM & KD for doing the hard yards over the past 3 months. As noted, IDG provides additional credibility and
access to senior contacts within China Inc.
Cash Management Plan - good to good to know the same
disciplines remain firmly in place.
Bear Head - NS Govt fully supportive, impressed by quality of team and
prefer over our neighbour. That Vancouver conference was very beneficial, follow on meetings scheduled with senior folks. All Canada solution delivers value across entire value chain. Remember, BC has
nothing to show for the $bns spent over many years. Go figure!
In summary, I remain quietly confident agreements are not too far away - with FID/ FC still targeted for YE.
And when they are announced, get ready for the mother of all melt ups.
Go LNG!!!
