'Advantage Canada' adds more uncertainty for paused Jordan Cove LNG in US

Houston — Improving commodity prices and new energy infrastructure that provides outlets for Western Canada oil and natural gas supplies are positive signs for Pembina's growth outlook, executives said May 7.

During an investor conference call to discuss the Canadian midstream operator's latest financial results, CEO Michael Dilger cited the Trans Mountain pipeline expansion, LNG Canada, Enbridge's Line 3 replacement and Pembina's and other third-party NGL export terminals that he expects to collectively boost demand for supplies from the Western Canadian Sedimentary Basin.

Notably absent from Pembina's growth outlook was the proposed Jordan Cove LNG export project in Oregon. While Pembina recently paused development of the liquefaction terminal and affiliated Pacific Connector feedgas pipeline, it has not officially abandoned the project.

In its earnings release and during the call with analysts, Pembina did not mention Jordan Cove. The only references to LNG in the release were to Shell-backed LNG Canada, which is under construction in British Columbia, and to Pembina's general goal to advance business opportunities tied to LNG. In the past, there was always a nod to the potential that Jordan Cove could bring if built, even if commercial and state regulatory challenges impeded construction in the near term.

This time around, the focus was all on Canada and the projects and market dynamics there that will benefit Pembina's pipeline system. Also in the mix: the government of Alberta's continued and increasing support and commitments related to the petrochemical industry, including various incentive programs that Pembina expects to drive higher ethane, propane and butane demand in Western Canada.

"We have named these factors collectively 'Advantage Canada,' and we expect them to generate ample opportunities for Pembina," Dilger said.

In April, Pembina told a US appeals court it was pausing development of Jordan Cove and Pacific Connector to assess the impact of recent regulatory decisions that could threaten the future of the project.

The decision came a month after Exelon-backed Annova LNG scrapped its proposed liquefaction terminal in Texas. In February, Pembina said it could no longer predict when it would be able to build Jordan Cove, though it said at the time that it was evaluating a path forward.

Pembina did not say in its filing with the US Court of Appeals for the DC Circuit how long the "pause," as the recent decision was described, would last. The lack of mention of the project in Pembina's first-quarter earnings release and investor call added to the uncertainty.

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Given its proposed location on the US West Coast, LNG produced at Jordan Cove would have a shorter shipping distance to the key East Asian import market than cargoes shipped from the US Gulf Coast. The project would also benefit Ruby Pipeline, through increased demand for feedgas volumes. Pembina has a stake in Ruby, while Kinder Morgan operates it.

Also, t he project has been eagerly anticipated by Rockies gas producers that have been looking for new outlets for their supplies.

For now, a year after the coronavirus pandemic took hold, Pembina is eager to take advantage of the continued market recovery, using the leverage of its existing infrastructure and already sanctioned projects. It is not opposed to strategic acquisitions, though M&A does not appear to be a focus.

"As our share price comes up, our currency improves, more things become possible," Dilger said. "But we are right now focused more on profitability and that torque as we've been trying to message when we fill off existing assets, it's almost infinite return, and we look absolutely outstanding. If we can improve our utilization, say, from 75% to 80% to 90% to keep our costs in check, we just sing, and that's our primary focus."