Warren Buffett’s exit from $9-billion Quebec LNG project after rail blockades ‘a signal’ to investors

‘We’re not going to find $4 billion tomorrow morning, and we sure aren’t going to find it in the region,’ says Saguenay deputy mayor

Warren Buffett, one of the world’s most influential investors, has pulled out of a proposed $9 billion liquefied natural gas project in Quebec over concerns about railway blockades and infrastructure challenges.

The domestic oil and gas sector was already reeling after Teck Resources cancelled its $20.6 billion Frontier oilsands project in Alberta last month, partly over fears about rail blockades, and as other strategic investors have avoided the industry.

“Over the last month, a clear signal has been sent to businesses across Canada that the rule of law will not be upheld and that major projects cannot get built,” Conservative MP for Chicoutimi-Le Fjord Richard Martel said in an email, adding that Quebecers “risk losing out” on a multi-billion project.

GNL Quebec confirmed Thursday it had lost a major potential investor as it seeks to build the $9 billion Énergie Saguenay project to export Western Canadian natural gas from a proposed facility in Quebec.

“This was a major private investor who left at the last minute,” GNL Quebec spokesperson Stephanie Fortin said in an interview.

“The reason is the recent challenge in the Canadian political context.”

She declined to provide the name of the investor or confirm the identity, but Montreal-based La Presse cited unnamed sources when it reported Thursday the investor was Omaha, Neb.-based conglomerate Berkshire Hathaway Inc., which is controlled by Buffett.

The identity was confirmed by Saguenay deputy mayor Michel Potvin to the Montreal Gazette.

Potvin, who heads the local investment agency known as Promotion Saguenay, said Berkshire would have invested about $4 billion.

“We did not need this, especially at this stage of the project,” Potvin said. “We’re not going to find $4 billion tomorrow morning, and we sure aren’t going to find it in the region. So we have to roll up our sleeves.”

In recent weeks, rail blockades and protests have also snarled major infrastructure in Canada, disrupting port shipments and stalling the delivery of grains and other commodities across the country.

“Add it to the list,” Raymond James analyst Jeremy McCrea said of Berkshire Hathaway’s decision to pull out of the LNG project in Quebec.

Major resource companies such as ConocoPhillips Co., Total SA and Devon Energy Corp. have sold billions of dollars in assets in Canada in recent years as an exodus of investors have caused activity in the energy sector to plummet.

“Reported news of a large investor pulling out of a major LNG project echoes what we have been independently hearing from other investors,” Alberta Associate Minister of Natural Gas Dale Nally said in an email to the Financial Post. “It’s undeniable that weeks of railways and ports being blockaded would deter international investors from doing business in Canada.”

Quebec Premier François Legault has frequently called for action to end the rail blockades in recent weeks as they hurt his province and much of Eastern Canada. His office declined a request for comment Thursday about how the blockades affected investment in the LNG project proposed for Saguenay.

Berkshire Hathaway did not respond to a request for comment.

Financial analysts, investors and energy executives say losing funding from Buffett is a major blow to the industry, which has already seen other investors quit, because other fund managers take cues from the so-called Oracle of Omaha’s investment strategy.

Buffett is the fourth-richest man in the world with an estimated net worth of US$81.2 billion and he built Berkshire Hathaway into a $508-billion conglomerate over the past few decades.

Berkshire Hathaway continues to own shares in Calgary-based oilsands producer Suncor Energy as well as U.S. energy companies Occidental Petroleum and Phillips66.

But the company’s decision not to invest in Énergie Saguenay “sends a signal that all governments and particularly the federal government should pay attention to,” said Tristan Goodman, president of the Explorers and Producers Association of Canada, which represents mid-sized oil and gas companies.

“We have to have foreign investment,” Goodman said. “We do need to ensure that major infrastructure projects can be built across the country.”

In addition, Berkshire Hathaway’s reported decision not to invest in a Canadian infrastructure project – even when other firms like Teck have pulled out of major projects – is particularly troubling because the company has a history of spending money when other investors are fearful.

“He’s a contrarian, which makes it even more of a message,” said Martin Pelletier, chief investment officer with TriVest Wealth Counsel Ltd. in Calgary.

GNL Quebec’s Fortin said the company is looking for additional investors for the project, which is expected to create 6,000 direct and indirect jobs across in Quebec during construction.

“I cannot say where our new investor will come from,” Fortin said, noting that publicly losing a strategic institutional investor “will make it harder” to find more investors.

She said the company still has 15 other unnamed investors in the project but will continue looking for more investors.

Still, she said, the company’s timeline for Énergie Saguenay has not been compromised. GNL Quebec is planning to make a final investment decision on the project at the end of 2021.

By Geoffrey Morgan, the Financial Post, March 5, 2020.

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Photo credit: Ryan Remiorz/The Canadian Press