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On again, off again, on ...; two BC LNG projects get fresh lift
Just when it seemed they were gasping for air, two of Canada’s leading hopes for an LNG industry - Petronas-led Pacific NorthWest and Chevron-operated Kitimat - have received a boost of oxygen.
Two individuals close to Pacific NorthWest say a sanctioning by the partnership is now likely in 2015, while Kitimat has received a surprise lift with the acquisition by Australia’s Woodside Petroleum of Apache’s 50 percent share.
British Columbia Premier Christy Clark, who never admits defeat at the worst of times, said Petronas, the Malaysian state-owned company, will almost certainly make its final decision in 2015, regardless of the fact that earlier in December Petronas announced an indefinite delay in the joint venture.
Greg Kist, the former president of Pacific NorthWest, who stepped down from the C$36 billion venture two months ago, told a Toronto meeting he believes Petronas and its partners will remove any doubts within three to six months.
Both based their forecasts on internal deadlines, including a targeted startup date of 2019, which restricts the construction and commissioning timetable to 50 to 54 months.
Kist said the other partners (Japan Petroleum Exploration, Indian Oil Corp., Sinopec, China Huadian and Petroleum Brunei) face a “requirement for the delivery of (LNG) at a certain time.”
If Pacific NorthWest does not get launched they must find volumes elsewhere, he said.
Shovel-ready needed Kist said Petronas will not be in a position to make a final investment decision unless the project is “shovel-ready,” which includes Canadian government environmental approvals, adding that if Petronas made a conditional FID now it would weaken its bargaining leverage.
He agreed with those who take issue with Petronas’ claim that low oil prices have forced it to shelve decision making, noting the Pacific NorthWest project economics factored in low-price market cycles.
Kist said foreign LNG proponents in British Columbia are challenged by high taxes, high construction costs and unresolved First Nations rights, but suggested the British Columbia government’s special LNG tax is mostly a political ploy to win over B.C. residents and is offset by the province’s continuing offer of royalty credit programs such as a deep well benefit that eases the financial burden of developing resource plays in the B.C. northeast.
Clark expects 2015 verdict Clark told the Financial Post she is “quite certain” Petronas will deliver a verdict in 2015.
“We have done what we possibly can to make the deal work,” she said. “Now they have to go out and get a better price from their suppliers.”
Clark said her government will not revise its tax regime, but is open to negotiating separate project development agreements with the other players.
Whatever happens with Pacific NorthWest, she noted that 17 other proponents have registered an interest (and many have export approvals from the National Energy Board) to develop British Columbia’s abundant gas resources.
She said some of the strongest interest has come from South Korea and India (which wants clean power to achieve its goal of becoming the world’s second-largest steel producer after China).
For Petronas the postponement of a decision on Pacific NorthWest could stall the search for another partner to reduce its stake to 50 percent from 62 percent, which could yield C$1.2 billion based on the C$2.5 billion it reportedly collected from Indian Oil, Sinopec and China Huadian, thus improving the project’s economics.
Woodside entry Meanwhile, the entry of Woodside, which plans to invest US$3.7 billion for Apache’s half-share of Kitimat and its 13 percent interest in the Wheatstone LNG project in Western Australia, brings a credible element to the Kitimat venture.
A Chevron spokeswoman said the deal brings Kitimat one major step closer to a final investment decision by overcoming any concerns about consistent ownership in the project.
She said Woodside brings “significant experience” to Kitimat along with a long history of working with Chevron on Australia’s North West Shelf LNG project that has been in business for 25 years, and in which the two companies each have a 16.67 percent stake, plus two other Australian projects.
Before the Dec. 15 announcement, Woodside was engaged in feasibility studies on its Grassy Point LNG facility near Prince Rupert on the northern British Columbia coast, which is designed to export 20 million metric tons a year of LNG, double the initial volumes for Kitimat, which has completed feasibility studies and is now in the midst of front-end engineering and design work.
Apache Chairman Steven Farris said in a statement he is “confident that Woodside’s participation will have a positive impact in seeing these world-class LNG facilities through to first production.”
However, RBC Capital Markets analyst Leo Mariani said in a research note that “many” do not believe that the obstacles facing Kitimat can be scaled, while Bernstein Research’s senior analyst Bob Brackett said Kitimat is still confronted with an “extremely high cost of development associated with both the remote LNG build and the upstream assets.”
The transaction, scheduled to close in the first quarter of 2015, includes natural gas resources in the Horn River and Liard basins of northeastern British Columbia, although Apache will retain control of its producing gas wells in the area.
- Gary Park
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