West Face Bets on New York and U.K. Gas Hunger With LNG Projects

Canadian hedge fund West Face Capital Inc. is investing in two projects that plan to bring natural gas by ship into New York and the U.K., banking on a chronic need for the fuel, according to a person familiar with the strategy.

With U.S. utilities paying as much as 15 times benchmark prices during winter peaks, a West Face-controlled company will chill the fuel into liquid in Louisiana or potentially other locations and process it back into gas offshore near New York and east of the Isle of Man.

The firm became a developer of gas projects on the expectation the price differential will provide profitable opportunities, said the person, asking not to be named because the strategy isn’t public.

Rising Asian and European demand for liquefied natural gas, or LNG, has triggered a wave of proposals to build export terminals from Australia to North America. Smaller providers will be more nimble to react to price fluctuations than large ones tied by long-term contracts, said Uday Turaga, chief executive officer of Houston-based oil and gas consultancy firm ADI Analytics LLC.

“Spot markets offer much better pricing than long-term contracts,” Turaga said by phone. “You can go and sell it to smaller consumers who need smaller volumes.”

West Face, through wholly owned LNG Holdings, is committed to investing as much as $600 million in the development of the Port Ambrose regasification project 20 miles (32 kilometers) off Long Beach in the New York area, and Port Meridian off Barrow-in-Furness, U.K., the person said.

Subsea Pipelines

Ships that transport LNG and turn the fuel back into gas on board, known as shuttle and regasification vessels, or SRVs, will connect to a submerged buoy system linked to subsea pipelines, according to Port Ambrose’s website. A similar system will be used in the U.K., according to Port Meridian’s page.

Port Meridian already holds a permit and is expected to be operational by 2018, while the Port Ambrose project is still in early-stage development.

LNG Holdings has struck an agreement to liquefy and load as much as 1.7 million metric tons of LNG a year onto ships in Lake Charles, Louisiana, to source the fuel.

West Face expects to profit from buying much cheaper gas at supply hubs and selling it to high-demand markets.

The price of gas deliveries into New York can surge 10-fold or more within days as rising demand for power generation and household use in winter strain pipeline capacity in the region.

Price Spikes

Spot prices in the Transco Zone 6 area that includes the New York region have averaged about $7.80 per million British thermal units since the start of the peak heating-demand season in November, and reached an intraday high of $50 on Feb. 18. That compares with an average of about $3.30 at the Henry Hub in Louisiana, which is the delivery point for New York futures. Last year, spot prices rose as high as $125 in January amid the coldest weather in 32 years in the New York region.

The investment firm’s expansion in the LNG market isn’t limited to the two offshore developments in the New York area and the U.K.

West Face, which is run by Greg Boland and based in Toronto, also is the second-largest shareholder in Halifax, Nova Scotia-based Corridor Resources Inc., which has prospective oil and gas fields in New Brunswick. The New Brunswick government has introduced a moratorium on fracking in the province.

The hedge fund also has found itself involved in a legal battle between Energy Fundamentals Group and Calgary-based Veresen Inc. over an LNG export facility at Jordan Cove, a port on the south coast of Oregon.

Court Ruling

The Ontario Superior Court ruled last month that EFG had the right to exercise an option to purchase as much as 20 percent of the project under the terms of an agreement with Veresen, and West Face has agreed to provide financing for EFG’s stake.

Veresen had argued before the court that the nature of the project had changed from an LNG import facility to an export terminal after the boom in U.S. fracking made the original plan uneconomical. Veresen had argued the terms of the original deal with EFG from 2005 were no longer valid, including the option to purchase the equity stake. The Ontario court disagreed.

Veresen is currently determining its next step, including whether to appeal the court’s decision, Dorreen Miller, a spokeswoman for the company, said in an e-mail.

Robert Hope, an analyst with Macquarie Capital Markets Ltd., said in a March 10 note he believed ultimately EFG and West Face weren’t interested in developing the Jordan Cove project.

He said the more likely scenario would be that they would seek a short-term exit “such as a buyout.”

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