Petronas delaying decision on B.C. LNG as oil slump further squeezes economics | iNFOnews | Thompson-Okanagan's News Source
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Petronas delaying decision on B.C. LNG as oil slump further squeezes economics

Original Publication Date December 03, 2014 - 1:45 PM

CALGARY - Malaysian energy giant Petronas said Wednesday it's delaying its proposed liquefied natural gas terminal near Prince Rupert, B.C., even though it's pleased with recent moves the provincial government has made to make the nascent LNG industry more competitive.

Petronas acknowledged the B.C. government has "brought resolution to key policy matters," such as establishing a tax regime for LNG firms, detailing offsets for greenhouse gas emissions and gaining support from First Nations.

But even still, the company said the conditions aren't right to proceed with the multibillion-dollar project.

Costs need to be lowered in order for the Pacific Northwest LNG project to go ahead, especially in light of crude prices that have dropped below US$70 a barrel.

The Malaysian firm's total investment of $36 billion covers the LNG plant, shale fields in northeastern B.C. and a pipeline to connect the two.

Petronas is the lead partner in the LNG terminal, with companies from China, Japan, India and Brunei holding minority stakes.

Despite the delay, both the B.C. government and the company struck a positive tone, expressing optimism the project will eventually proceed.

"British Columbia is on schedule to build a liquefied natural gas industry and secure new economic growth," said B.C. Premier Christy Clark in a statement. "I am pleased we have furthered our prospects to supply clean natural gas to international markets by reaching another milestone with Pacific NorthWest LNG."

Natural Gas Development Minister Rich Coleman said the company now needs to find ways reduce costs so the project will be approved by its board of directors.

"It's a $36-billion investment that they are making, so it was always clear that once they got our piece completed that they would move on to making sure that their numbers across the board with their partners work," he said.

"So that's the pipeline, that's the upstream costs for gas plants, that's the plant itself which they need."

Coleman said he expects to meet again with the company in the new year and he'll have a better sense when they are prepared to make their final decision.

"But it's strictly at their timing," he said. "This is not unusual in a project like this. This is a project that these guys really like and they just want to make sure the numbers are right."

Bruce Ralston, the Opposition New Democrat's natural gas development critic, said the Petronas announcement is a setback for the Liberal government.

He said the government expected at least one LNG final-investment decision before year's end.

Petronas CEO Shamsul Azhar Abbas said he hopes to clear up the remaining issues "as soon as possible" so a decision can be made in time to meet the demand of Asian customers.

"This is vital in light of the current intense market environment and for Pacific NorthWest LNG not to lose out on long term contracts to competitive United States LNG projects," he said.

Ed Kallio, director of gas consulting at Ziff Energy in Calgary, said he's not surprised Petronas and its partners aren't ready to decide yet.

"They're being very, very careful and very measured and if one or a couple of the partners need a bit more time, I think it's worth taking that time to get the decision right," he said.

It was unlikely Petronas would have made its decision by year-end regardless of the recent turmoil in oil markets, Kallio added

The B.C. government took its time announcing its LNG tax rules, leaving little time for Petronas to crunch the numbers ahead of its year-end target, he said, adding the oil price slide has only made matters more challenging.

B.C.'s net income tax rate will be 3.5 per cent for LNG players — half of what was proposed earlier. The rate will rise to five per cent in 2037 once the industry is established

"The rules came out OK, but they didn't know the rules were going to come out OK," said Kallio. "If they had known that a year ago, they could have done more of their diligence up front and then potentially they would have (made a final investment decision) already."

Follow @LaurenKrugel on Twitter

with files from Dirk Meissner in Victoria.

Follow @CPMeissner.

News from © The Canadian Press, 2014
The Canadian Press

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