|
LNG cost pressures; BC project proponents uneasy about tax plan
Faced with rising costs and uncertain about the impact of a proposed tax, some of the biggest LNG players in British Columbia are on the hunt for partners as they voice concern about the province’s ability to compete with other export countries.
The fallout from the government’s tax framework gained momentum when AltaGas, operator of the Triton project with Japan’s Idemitsu, said the tax puts British Columbia at a “disadvantage.”
Chief Executive Officer David Cornhill told a conference call with analysts the tax could delay an investment decision that had been scheduled for this year on Triton’s plans to ship 2.3 million metric tons a year of LNG starting in 2017 — making it one of the smallest of the 13 projects in the works for British Columbia — along with 700,000 metric tons a year of liquefied petroleum gas by 2016.
He said the two-tier tax is being evaluated for its impact on AltaGas, which is a potential gas producer and owns the only existing pipeline to the LNG terminals at Prince Rupert and Kitimat.
“It is clear, however, that the tax puts British Columbia at a disadvantage to compete with other suppliers in the world. The tax would also impact regional LNG, resulting in higher costs to our customers,” Cornhill said.
He said that because LNG is more complex than LPG the investment decision on an export terminal has become “more variable.”
Others also voice tax concerns Shell Canada, operator of the LNG Canada project with Korea Gas, Mitsubishi and PetroChina as partners, and Malaysia’s Petronas have also suggested the tax could make British Columbia uncompetitive.
Meanwhile, Houston-based Apache and Petronas have disclosed plans to sell portions of their project stakes.
Admitting to unease about the initial round of costs it faces just to reach a final investment decision, Apache — an equal partner with operator Chevron in Kitimat LNG — said it is pursuing its original intention to reduce its stake.
Petronas, operator of Pacific NorthWest LNG, said it is close to unloading a 25 percent share, having already sold 10 percent to Japan Petroleum Exploration and 3 percent to Petroleum Brunei.
At least a billion to reach decision The challenge facing all proponents was underscored by British Columbia’s Natural Gas Development Minister Rich Coleman, who has estimated that any company serious about entering the LNG industry should be prepared to spend more than C$1 billion just to reach the point of making a corporate sanctioning decision.
Apache chief executive officer Steven Farris told analysts on Feb. 26 that his company, having budgeted C$1 billion for this year alone, needs to “right size” its participation in Kitimat LNG.
He said the partnership expects to invest C$2 billion in 2014 on front-end engineering and design for an LNG export terminal at Kitimat, on the northern British Columbia coast.
Farris said Apache’s efforts to rebalance its portfolio make it too costly to carry the development bills for Kitimat LNG under the current arrangement of only two co-owners.
An Apache spokesman told the Globe and Mail the company, despite its wish to sell an equity position, will “continue to maintain a material interest. We desire to reduce our exposure in 2014.”
Petronas finalizes deal Petronas Chief Executive Officer Shamsul Azhar Abbas said his company has “finalized a further 25 percent equity participation” with a state-owned Indian company and an established Asian LNG buyer, without disclosing the names, or the price.
Indian Oil Corp., IOC, has frequently been mentioned as a candidate for a 10 percent share, following an approval in early February by the Indian government for a C$1 billion purchase of 10 percent in Progress Energy Resources, which controls the British Columbia shale gas properties that will support Pacific NorthWest.
Industry sources have said IOC has secured a C$900 million one-year bridge loan from a group of banks to support that purchase and claimed IOC is now in the process of raising funds for the LNG transaction.
Petronas has previously indicated it would like to sell half of the project and is reportedly in discussions with Chinese firms.
The Malaysian company pointed to its own financial pressures by stalling again on a final investment decision to build a US$19 billion petrochemicals complex in Malaysia’s Johor state.
Coleman said he is not surprised Apache is looking to involve others in sharing the costs of Kitimat LNG, suggesting that is to be expected as proponents strive to balance their interests in the upstream and downstream elements of their projects.
But he noted preparation for Kitimat has been intensive, including construction of an 11-mile road to the Kitimat terminal site.
—Gary Park
| 