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The Big Picture: Canada and Australia from the Top Down

By Roger S. Conrad on Jun. 15, 2013

Headlined by Alberta’s oil sands, Canada has the resource base and access to long-term capital from resource-hungry Asia to grow its hydrocarbon output dramatically in coming years.

US-based investors tend to focus on the tremendous opportunity in the oil sands–largely because of the amounts of foreign capital involved and the controversy over the Keystone XL pipeline. But projects to produce, liquefy and export natural gas from Canada’s plentiful reserves on the West Coast continue apace.   

Chevron Corp’s (NYSE: CVX) purchase of Encana (TSX: ECA, NYSE: ECA) and EOG Resources’ (NYSE: EOG) interests in the Kitimat project gave this endeavor a huge shot in the arm. Now fully permitted, the facility is on track to bring natural gas extracted from the Liard and Horn River Basins in British Columbia to international markets.

Petronas, Malaysia’s state-owned oil company, expects its CA$16 billion export facility in British Columbia also to come onstream in 2019. Meanwhile, several other companies are contemplating plans to ship liquefied natural gas (LNG) from Canada to overseas customers. One such venture would partner midstream operator Altagas (TSX: ALA, OTC: ATGFF) with Japan’s Idemitsu Kosan (Tokyo: 5019, OTC: IDKOY).

British Columbia’ government forecasts that LNG production and exports will become a more than CA$1 trillion business that will create jobs and generate significant tax revenue. The list of potential winners includes natural-gas producers that have suffered from a continent-wide supply glut and midstream operators that will build the pipelines and processing infrastructure needed to support these export facilities.

Investors also shouldn’t overlook the boom in light-oil production from the Canadian extension of the Bakken Shale, the Cardium formation in western Alberta and other unconventional fields. Development of these shale plays has created a major source of output growth for buy-rated Enerplus Resources (TSX: ERF, NYSE: ERF) and Vermilion Energy (TSX: VET, OTC: VEMTF).

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