Within the Legault administration, some suspect that Berkshire Hathaway actually didn’t believe the business case for the project was strong enough

OTTAWA – The Quebec government knew weeks ago that Warren Buffett’s Berkshire Hathaway was considering pulling out of the GNL Québec’s ambitious $14-billion liquefied natural gas project.

A March 5 report from La Presse that the legendary investment fund suddenly pulled out of the project mere weeks before its involvement was to be announced came as a shock to most.

Distroscale

But information from sources within the provincial government as well as the companies tied to the proposal reveal that though Berkshire Hathaway’s retreat was “sudden,” there were signs that the fund’s interest in the project were flailing weeks before.

The project is in fact a two-pronged construction. The first is a natural gas liquefaction complex at Port Saguenay, Qc., that would eventually lead to annual exports of 11 million tonnes of liquefied natural gas.

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The second is the creation of a 780-kilometre pipeline to carry western Canadian gas, which would be built and operated by a separate company called Gazoduq.

Explanations as to why Buffett’s fund dropped the project differ significantly. Industry sources pointed to the current “Canadian political climate”, such as Teck Resources pulling its Frontier oilsands project or the railway blockades set up in protest of Coastal GasLink’s gas pipeline proposal.

“If a project can go through all or most of the regulatory and financial hoops and still not be able to go forward, what message does that send to investors?” said one source, who requested anonymity as to be able to speak freely. “The fund had finished its due diligence of the project and the results were very satisfactory.”

“Each investor is free to disclose whatever reasons they choose as to why they’re investing or not in a project. I can tell you that in this case, the reasons that were disclosed to the companies were purely the political context,” added another industry source, who refused to mention what incidents in particular for confidentiality reasons.

This is one of the reasons why Quebec Premier François Legault became one of the most vocal proponents for an end to the railway blockades by the end of February, sources say.

If a project can go through all or most of the regulatory and financial hoops and still not be able to go forward, what message does that send

Those same sources confirmed suspicions raised by La Presse that quotes from Legault as well as Jonatan Julien, the province’s minister of Energy and Natural Resources, two weeks ago were directly tied to Berkshire Hathaway’s dithering.

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“This is an important project, but, at the moment, the funding is not completely in place,” Legault said regarding GNL Québec’s project on Feb. 25, according to media reports.

“GNL Québec needs major investments to land this project. The boards of directors of investment firms must be watching the current situation carefully”, said Julien.

But within the Legault administration, some suspect that Berkshire Hathaway actually didn’t believe the business case for the project was strong enough.

“The only explanation we’ve heard of is that the outlook over the next 20 to 25 years wasn’t as much as they’d hoped for. So the political climate is a good excuse to back out without scaring off other investors who may still think it’s promising,” said one source with direct knowledge of the situation.

“They’re aiming for the export market and the cards are current being shuffled on the world stage. The added competition, notably from Russia, made it that the international natural gas market wasn’t as certain as previously expected,” continued the source.

Photo by Jacques Boissinot/The Canadian Press/File

Despite that, the fund’s decision to pull out was remarkably sudden. For example, GNL Quebec and Gazoduq went on a “hiring spree” in the last few months because they were certain that they had the funding to move forward with Berkshire Hathaway.

Since then, multiple hires have been put on hold by both firms, as they “reassess” their needs and priorities in the short and medium term.

In other cases, employees who were hired for a certain task have been reassigned to different departments, a source confirmed.

One such person who left their job because GNL Québec had recruited them told the National Post that their hiring had been suspended, leaving them in a limbo. The person asked to not be named.

Next week, GNL Quebec’s liquefaction complex project will begin Quebec’s environmental assessment. As of now, both the complex and the pipeline are slated to be completed and begin operation in 2025.