After dropping out for 10 months, Malaysia’s state-owned energy conglomerate on Thursday rejoined the lineup to start liquefied natural gas (LNG) exports from the Pacific coast of British Columbia by enlisting in the terminal project led by Royal Dutch Shell plc.
The LNG Canada consortium of Shell, Mitsubishi Corp., PetroChina and Korea Gas Corp. (Kogas) announced the recruitment of Petroliam Nasional Berhad, aka Petronas, as a 25% partner in its plan to build a Kitimat outlet in the province in stages for up to 3.7 Bcf/d.
A decision to start the estimated C$14 billion ($11 billion) construction project “remains pending,” the group added. The timing and outcome of a final investment decision (FID) “will be decided by joint venture participants based on global energy markets, and the overall competitiveness and affordability of the project.”
The expansion of the project partnership follows encouraging developments since Petronas last July scrapped its comparable proposal for a terminal farther north on the BC coast at Prince Rupert, Pacific Northwest LNG.
The BC government has given LNG Canada until November to accept an incentive offer of C$6 billion ($4.8 billion) in provincial income, sales and carbon tax cuts.
The National Energy Board (NEB) has opened a growth path for BC unconventional production by granting contested construction approval recently to TransCanada Corp.’s C$1.4 billion ($1.1 billion) North Montney Mainline.
Through Canadian subsidiary Progress Energy, Petronas has booked shipping capacity on the TransCanada addition for 700 MMcf/d of new production from the Montney Shale gas-heavy properties retained after the Pacific Northwest LNG project died.
A landmark native rights ruling by the Canadian Federal Court of Appeal, against a tribal bid to overturn NEB approval of TransCanada pipeline expansion, has preserved industry access to the Montney and Duvernay formation deposits in northern BC and Alberta.
Under the new partnership deal, the ownership structure of LNG Canada becomes Shell as operator with a 40% stake, Petronas 25%, and PetroChina and Mitsubishi each would have a 15% stake, while Kogas would hold 5%.
Petronas president Tan Sri Wan Zulkiflee Wan Ariffin did not disclose financial details of the Canadian move or predict the outcome of the BC project review. He said only, “We are committed to deliver LNG and natural gas, the cleanest fossil fuel in the world, to the growing global energy market.”
Wood Mackenzie senior analyst Prasanth Kakaraparthi said the additional participation by Petronas “ marks an interesting turn of events” after it canceled its Canadian LNG export plans.
“With nearly 52 Tcf of reserves and contingent resources, Canada is the second largest resource holder in Petronas’ portfolio after Malaysia. Consequently, monetization through LNG is inevitable given the weak outlook for domestic prices.
“Costs will be a major concern for the project,” Kakaraparthi said. “Shell has announced its intent to make a decision by end of this year. But before LNG Canada can take FID, it will need to lower costs and take advantage of the latest tax breaks announced by the BC government.”
Wood Mackenzie’s team believes the addition is “a positive development for Petronas.” Analysts expect the global LNG market “to tighten post 2022, and this bodes well for the project. But activity has returned to the LNG space with a number of projects expecting to take FID ahead of 2019. A new wave of project sanctions and rising oil prices could push up project costs and dampen the economics.”
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