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Petronas Hits Pause Button on BC LNG Export Project

The leading contender to build Canada’s first liquefied natural gas (LNG) export terminal on the Pacific Coast of British Columbia (BC) stepped aside Wednesday, saying “challenging” markets prevent making a big commitment.

Malaysian state-owned gas and oil conglomerate Petronas deferred an investment decision, previously scheduled for this month, on letting wholly-owned Calgary subsidiary Progress Energy start construction on the proposed, C$11.6 billion (US$10.5 billion) Pacific NorthWest LNG. No new target date was set.

The BC government did all in its power to advance the project by granting environmental approval Nov. 26, cutting the provincial export tax in half on Oct. 21 to 3.5%, setting clear greenhouse gas emissions standards and securing a co-operation and benefits agreement with the nearby aboriginal Nisga'a Nation, Petronas said.

Natural Gas Development Minister Rich Coleman said, "We have put the foundation in place, including a competitive fiscal framework and skills training plan, to ensure Pacific NorthWest LNG has the assurance it needs to move forward with a final investment decision in our province."

After private talks with Coleman and BC Premier Christy Clark in the provincial capital of Victoria this week, Petronas president Tan Sri Shamsul Azhar Abbas said he hopes the postponement will be short.

A “window” of international competition for long Asian sales contracts remains open, but rival projects, especially in the U.S., pose strong competition, he said. He has predicted the next overseas market opening will take 10 to 15 years to roll around.

The Petronas president said he hopes "all outstanding factors can be resolved as soon as possible to enable the final investment decision to be made within the identified LNG supply and demand window. 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."

Subsidiary Progress Energy will continue drilling on a spread of northern shale gas leases, where the company has identified liquids-rich targets that can produce for North American markets via established east- and south-bound pipelines.

But any long postponement of the LNG terminal, near the northern port of Prince Rupert, is expected to delay or halt two pipeline projects: the C$1.7 billion (US$1.5 billion) North Montney Project for northern shale fields proposed by Nova Gas Transmission Ltd. and its parent TransCanada Corp.’s C$5 billion (US$4.5 billion) Prince Rupert Gas Transmission conduit intended to cross about 900 kilometers (560 miles) of BC to the Pacific Coast.

In a pipeline approval case now before the National Energy Board (NEB), the Petronas-Progress project has emerged as the main customer for North Montney and Nova has testified the line will only be built if the LNG terminal is built. TransCanada’s project likewise relies on overseas exports via Prince Rupert, where a number of LNG terminal schemes have lined up potential sites.

“Costs associated with the pipeline and LNG facility remain challenging and must be reduced further before a positive FID [final investment decision] can be undertaken,” Petronas said.

The company highlighted the large expense of starting an LNG operation from scratch in remote northern BC by estimating the total commitment required to build facilities and develop supplies as C$36 billion (US$32.4 billion).

BC’s premier, who led the Liberal party to re-election last year on a campaign platform promising enrichment of the province by LNG, insisted the target of having export terminals in operation by 2020 can still be hit.

"British Columbia is on schedule to build a liquefied natural gas industry and secure new economic growth," said Clark. She described the Petronas-Progress team’s vow to keep on working towards building an export terminal, rather than scrap the plan due to stiff competition and soft energy prices, as a “milestone” for all concerned.

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