CALGARY — Malaysian energy giant Petronas said Wednesday its delaying its proposed liquefied natural gas terminal near Prince Rupert, B.C., even though its pleased with recent moves the provincial government has made to make the nascent LNG industry more competitive.
Petronas acknowledged the B.C. government has brought resolution to key policy matters, such as establishing a tax regime for LNG firms, detailing offsets for greenhouse gas emissions and gaining support from First Nations.
But even still, the company said the conditions arent right to proceed with the multibillion-dollar project.
Costs need to be lowered in order for the Pacific Northwest LNG project to go ahead, especially in light of crude prices that have dropped below US$70 a barrel.
The Malaysian firms total investment of $36 billion covers the LNG plant, shale fields in northeastern B.C. and a pipeline to connect the two.
Petronas is the lead partner in the LNG terminal, with companies from China, Japan, India and Brunei holding minority stakes.
Despite the delay, both the B.C. government and the company struck a positive tone, expressing optimism the project will eventually proceed.
British Columbia is on schedule to build a liquefied natural gas industry and secure new economic growth, said B.C. Premier Christy Clark in a statement. I am pleased we have furthered our prospects to supply clean natural gas to international markets by reaching another milestone with Pacific NorthWest LNG.
Natural Gas Development Minister Rich Coleman said the company now needs to find ways reduce costs so the project will be approved by its board of directors.
Its a $36-billion investment that they are making, so it was always clear that once they got our piece completed that they would move on to making sure that their numbers across the board with their partners work, he said.
So thats the pipeline, thats the upstream costs for gas plants, thats the plant itself which they need.
Coleman said he expects to meet again with the company in the new year and hell have a better sense when they are prepared to make their final decision.
But its strictly at their timing, he said. This is not unusual in a project like this. This is a project that these guys really like and they just want to make sure the numbers are right.
Bruce Ralston, the Opposition New Democrats natural gas development critic, said the Petronas announcement is a setback for the Liberal government.
He said the government expected at least one LNG final-investment decision before years end.
Petronas CEO Shamsul Azhar Abbas said he hopes to clear up the remaining issues as soon as possible so a decision can be made in time to meet the demand of Asian customers.
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, he said.
Ed Kallio, director of gas consulting at Ziff Energy in Calgary, said hes not surprised Petronas and its partners arent ready to decide yet.
Theyre being very, very careful and very measured and if one or a couple of the partners need a bit more time, I think its worth taking that time to get the decision right, he said.
It was unlikely Petronas would have made its decision by year-end regardless of the recent turmoil in oil markets, Kallio added
The B.C. government took its time announcing its LNG tax rules, leaving little time for Petronas to crunch the numbers ahead of its year-end target, he said, adding the oil price slide has only made matters more challenging.
B.C.s net income tax rate will be 3.5 per cent for LNG players—half of what was proposed earlier. The rate will rise to five per cent in 2037 once the industry is established
The rules came out OK, but they didnt know the rules were going to come out OK, said Kallio. If they had known that a year ago, they could have done more of their diligence up front and then potentially they would have (made a final investment decision) already.
