Petronas cancels $11.4b plan
Global glut, depressed prices factor into gas giant’s decision
Amid a global glut and depressed prices for natural gas, one of B.C.’s most promising LNG-export megaprojects has died.
Pacific NorthWest LNG, an $11.4-billion project once slated for construction on Lelu Island south of Prince Rupert, “will not proceed as previously planned”, Malaysian state-controlled oil and gas giant Petronas announced Tuesday morning.
Petronas said in a statement that the decision was made following a thorough review of the project as market conditions fluctuate.
“Today is a very difficult day for Pacific NorthWest LNG and Petronas,” said Pacific NorthWest LNG chairman Anuar Taib.
“We are disappointed that the extremely challenging environment brought about by the prolonged depressed prices and shifts in the energy industry have led us to this decision.”
Taib said the formation of a new B.C. NDP government — which previously opposed putting the plant on Lelu Island, located near important juvenile salmon-rearing habitat of significance to First Nations — wasn’t a factor in the decision.
He said Petronas looked forward to working with Premier John Horgan and would continue to look at other options to develop natural gas assets in Canada.
“We continue to believe that LNG can thrive in British Columbia with the right project at the right time,” Taib said.
Port Edward mayor Dave MacDonald said Tuesday he was very disappointed about the announcement, but added his community, the closest to the project, would try to position itself for other smaller development projects.
“The decision was well beyond our control. Port Edward did everything we could,” said MacDonald, whose council had supported the project.
“You hear it’s ‘never going to happen, it’s never going to happen.’ But we tried to remain optimistic,” he said.
The community of 600, adjacent to the larger community of Prince Rupert, was in sight of Lelu Island, where the LNG terminal was slated to be built.
The community stood to gain from taxes, improved infrastructure, jobs and a major camp that would house thousands of workers.
James Tansey, associate professor with the Sauder School of Business at the University of B.C., said he’d seen indications lately that Petronas was on the fence regarding the investment.
“That’s a function, partly, of maybe underestimating the complexities of getting deals done in B.C., but also of longer-term low oil prices in Asia (where) the oil prices are tied to the gas prices,” he said.
Tansey said even for a big player like Petronas, current oil prices — consistently below US$50 per barrel — make such investments unattractive.
Still, Tansey said he was surprised by Petronas’ decision to pull out of the project completely, after it had already spent significantly on development and consultation for a site that provided the advantage of a shorter shipping route to Asian markets.
He said there didn’t seem to be a big downside to putting a halt on the project and watching where oil prices go.
Tansey said that six to eight months ago, consensus among those watching the industry was that little progress would be made before 2022, despite the previous government expecting revenues to start pouring in by 2018.
“I definitely think it’s going to be a long time before we see investment,” Tansey said.
“The fundamentals of natural gas, shale gas and LNG are still there, so at some point in the future it will make sense for someone big to invest in B.C. But at the current global prices, it’s not going to be immediate.”
Michelle Mungall, B.C.’s minister of energy, mines and petroleum resources, said she would immediately begin work with the LNG sector to ensure it that the new B.C. NDP government has plans to see other projects come to fruition.
“(Petronas) was very clear — this was a decision they are making because of the economic challenges in the global marketplace,” Mungall said.
“We respect the company’s decision and will now move on to support the prospects of British Columbia’s natural gas sector to create good-paying jobs right here in British Columbia.”
Pacific NorthWest LNG received federal approval last September and had been a leading LNG project proposal for several years.
The plant would have shipped 19 million tonnes of liquefied gas a year to markets in Asia, while pumping more than five million tonnes of carbon dioxide annually into the atmosphere.
The project’s approval represented part of a delicate balancing act by Prime Minister Justin Trudeau, who won the hearts and minds of young Canadians — especially in B.C. — with his promise to show greater respect for the environment than his predecessor, Stephen Harper.
But Trudeau also vowed to help Canada’s natural-resource industry create more middle-class jobs.
The former B.C. Liberal government, led by Christy Clark, had promoted LNG as an economic boon to the province, but it failed to materialize under her watch.
Other jurisdictions, including the U.S., jumped ahead of B.C. and then major energy companies dialed back spending when oil prices plummeted.
However, there are other LNG projects that continue to say they remain interested in B.C.