Petronas defers final investment decision on BC LNG project

Just two days ago the premier of British Columbia was optimistic about a major Petronas liquefied natural gas plant proposed for that province. The Malaysian state energy giant has been in talks with the province for months. The BC government just this week passed new legislation that outlines its tax structure and environmental regulatory requirements for LNG projects. But today the Petronas CEO, Shamsul Abbas, who was in BC for more meetings with the government, said they were not prepared to go ahead at this time, and the final investment decision (FID) in the Pacific NorthWest LNG plant is deferred.

The reason Petronas gave is economic. The company says that the government has resolved “key provincial policy matters” that would provide the necessary certainty for proceeding with the project, but declining oil prices present challenges of economic viability. Petronas and its partners in the $36 billion project say that costs associated with the pipeline and the LNG facility are too high. “Costs associated with the pipeline and LNG facility remain challenging and must be reduced further before a positive FID can be undertaken.”



The Petronas statement acknowledged that the BC government had put in place a “competitive” LNG income tax, provided details for offsetting greenhouse gas emissions, and entered into agreements with First Nations that would allow the project to move ahead. However, the company is biding its time, balancing the need to control costs against lower oil prices, and desperate not to lose out in the long term to competitors in the US.

On the same day as the disappointing news from Petronas, GE Oil and Gas announced that another major BC LNG consortium, LNG Canada, has chosen GE technology to power a proposed liquefaction plant in Kitimat BC. LNG Canada comprises Shell Canada Energy, affiliates of Royal Dutch Shell and PetroChina, Korea Gas Corporation and Mitsubishi Corporation.

The BC government has been counting on an LNG industry to bring in billions of dollars in revenue. It has set a goal of having five LNG plants operational in the province. Today Premier Clark said that the province was “on schedule” to build its LNG industry.

On the other side of the country, meanwhile, a Spanish energy company, Repsol, is reported to be interested in building an LNG export facility on the east coast. A Reuters report says that Repsol is looking for partners to raise $4 billion for the project, which would ship LNG to Europe. Repsol has a facility in New Brunswick.

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