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Petronas backs off LNG plan
British Columbia Premier Christy Clark boasted on Dec. 1 that her government was in “good shape” to convince Petronas to sanction its huge Pacific NorthWest LNG project.
Two days later she was left red-faced when the state-owned Malaysian energy giant deferred a decision indefinitely, blaming the “current intense market environment” and the company’s need to reduce the total spending package of about C$36 billion.
It was, without doubt, the biggest setback yet to the province’s grand LNG dream, which had seen voters buy into Clark’s promise of an LNG industry that would attract investment over 30 years of C$1 trillion on up to five projects, create 100,000 jobs and build a Prosperity Fund of C$100 billion to wipe out British Columbia’s debt.
The toll it will take on the premier and her Liberal government won’t be known until the next provincial election in 2017, during which time the LNG world could make a comeback, allowing British Columbia to play at least a modest role.
If not, voters won’t soon forget Clark’s typically feisty promises of great things to come, allowing her to reverse what looked like a crushing defeat in May 2013 into a resounding victory.
Petronas strong-armed government And they’re not likely to forgive Petronas, whose Chief Executive Officer Shamsul Azhar Abbas strong-armed Clark’s government into slashing a planned tax on LNG terminals in half, which Petronas said at the time would have a positive impact on its project.
In October he turned up the heat in a volatile relationship with the government by threatening a possible 15-year delay for Pacific NorthWest because of regulatory foot-dragging and a lack of incentives and stability.
By Nov. 28 he raised hopes by announcing plans to hold high-level meetings Dec. 1 with Clark and government officials to work out the “loose ends” on a final agreement.
He told reporters in Kuala Lumpur, before leaving for Vancouver, that most of the issues hindering Pacific NorthWest had been resolved, opening the way for a final investment decision.
“We are going to sit down together and discuss firmly so that clarity is given,” Shamsul said.
“We have the balance of one quarter of issues at hand. We reckon we can sit down and strike a solution.”
Asked about the Petronas meeting, Clark said: “We’ve gotten a tax structure that works, we’ve got an environmental compliance structure that works, so we’re getting close I think.”
Following the Dec. 1 meeting with Shamsul and Petronas officials, Natural Gas Development Minister Rich Coleman said the discussions were “productive,” but hedged his bets by saying only that he was “confident in the work being done. We’ve set a foundation for a competitive industry to be built here.”
Petronas, BG stall On Dec. 3, the boom was lowered when Petronas joined the United Kingdom-based BG Group in stalling progress on LNG projects, while the other big players - Chevron, ExxonMobil and Shell waffle on their plans.
It said more clarity is needed around a “competitive” tax, greenhouse gas emission targets for LNG and agreements with First Nations whose traditional lands will be affected.
Shamsul said in a statement that Petronas, along with its other Asian partners - China’s Sinopec at 15 percent, Japan Petroleum Exploration 10 percent, Indian Oil Corp. 10 percent and Petroleum-Brunei 3 percent - still hopes “the outstanding factors can be resolved as soon as possible.”
He also praised Clark and Coleman for their leadership and their “commitment to bring a nascent LNG industry in British Columbia to fruition.
“Costs associated with the pipeline (C$5 billion) and LNG facility (C$11.4 billion) remain challenging and must be reduced further before a positive (investment decision) can be undertaken,” he said.
No bold forecasts from analysts No analysts have shown any desire - at a time when plunging oil prices have buried hopes of using oil-indexed prices to secure LNG sales - make bold forecasts on British Columbia’s chances of becoming a global LNG player.
TD Securities analyst Scott Treadwell allowed a crack of light to penetrate the gloom by suggesting the Petronas deferral “is more of a negotiating tool than a reassessment of the viability of the project.”
He said there could be another dose of optimism in 2015 if the Canadian government grants relief to the LNG industry, notably through possible tax concessions for asset depreciation rates.
Others were less cheerful, with Eric Nuttall, from Sprott Asset Management in Toronto, interpreting Petronas’ decision as “a nail in the coffin for the project,” adding that Canada is “uncompetitive relative to other jurisdictions such as the Gulf of Mexico, Australia or Qatar.”
Brian Yu, a Vancouver-based economist for Central 1 Credit Union, said “this is not good news” for British Columbia.
- Gary Park
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