Summary
Canatxx Gas Storage Limited ("CGSL") and Canatxx LNG Limited ("CLNG") announces that it has retained BNP Paribas Corporate Finance to advise it in seeking strategic investors to take a stake of up to 50 per cent in the Company. Key UK projects are an LNG import terminal linked to a planned gas storage facility located in the county of Lancashire on the Irish Sea coast. The site is planned to be the largest onshore natural gas storage (UGS) facility in the UK.
Analysis
Canatxx have been attempting to develop a unique project over the last few years involving an LNG import terminal on the island of Anglesey linked by a 70 mile sub-sea pipeline to a major new underground gas storage facility on the UK mainland at Preesall. This project therefore includes three discrete elements – LNG terminal; sub-sea pipe; and UGS.
The LNG import terminal is designed to be an offshore facility, capable of receiving the largest LNG tankers and providing full regasification of the unloaded LNG. This 3bcm plant does, however, have very limited LNG storage of 2 x 7000cbm. The concept is that the unloaded LNG will be immediately regasified and fed by pipe to the mainland UGS facility for storage in gaseous form. This LNG facility and sub-sea pipeline has received planning approval and has been ready to develop for some time.
The development of the onshore UGS facility is however a major problem in that it has been rejected several times by the Planning Authority. The surface and coastal area for this facility is a scenic area and includes a designated area of “special scientific interest” and there is strong local opposition to this gas storage facility.
This very large UGS facility is desperately needed for the UK, a point which has been re-emphasised by the recent Russian-Ukraine gas constraints in continental Europe which fortunately has had only price reflections in the UK rather than shortages at this time – this will be very different in the future. The UK only has UGS capacity of around 4% of average annual demand (circa 14 days) compared with France with 24% and Germany with 21%. This is not surprising as the UK has traditionally relied on “adjusting” the North Sea gas production to provide “swing” (to cater for peaks) in the market. This will not be possible in the near future as these North Sea fields are depleting rapidly and the UK is moving towards import dependency, requiring urgent development of more gas storage (UGS).
However, only a handful of new UGS projects have reached construction stage in the last years with many deferred or cancelled. There have recently been several representations to Government by the major gas storage providers and storage developers in the UK that it will be uneconomic for them to build new facilities without “tax breaks”, a financing position that has now been compounded by the global credit crunch. This lack of finance available may well account for Canatxx going out for equity partners at this stage of the project.
Although this situation looks somewhat black for the Canatxx project, there may be another screw to turn with the UK Government. On the island of Anglesey sits a major Aluminium smelter (Anglesey Aluminium Metals – owned by ALCAN) which now has a major problem. It has traditionally purchased its substantial electric power load (circa 250MW) from the Wylfa nuclear power plant which has to close next year, although there is some extension for possibly another 15 months supply. There is no other suitable and commercially acceptable power supplier in the area and this smelter may need to close putting around 500 people out of work. Part of the original Canatxx proposal was also to build a gas-fired CCGT and if a suitable “deal” was done to save the plant there may be a good chance that the Government might intervene to push through approval of this entire Canatxx project. This could finally be a case of politics actually helping the industry rather than hindering, and allow entry of new equity to this key project.
