Petronas buys stake in B.C. LNG project
CALGARY —Canada’s stalled West Coast LNG export industry received a shot in the arm Thursday with news that Malaysian state-owned energy company Petronas will take a 25 per cent equity interest in LNG Canada.
The Shell Canada-led project, with an estimated cost of $40 billion including a natural gas pipeline, is considered one of the most likely of some 20 proposed West Coast liquefied natural gas projects to proceed, with a final investment decision widely expected this year.
Petronas, meanwhile, is one of the largest natural gas explorers in the North Montney region of northeastern B.C. A year ago, it and its partners cancelled their $36-billion Pacific NorthWest LNG project near Port Edward, due to prolonged low LNG prices.
“If there were any lingering doubts that the LNG Canada partners might not green-light the project this year, they have probably been erased,” CIBC analysts said in a research note on Thursday.
“It’s hard to believe Petronas would be inclined to participate in another false start.”
The addition of Petronas helps answer the question of where LNG Canada will obtain the gas — up to four billion cubic feet per day — it will require, the CIBC analysts added.
Petronas has 52 trillion cubic feet of natural gas reserves and contingent resources in Canada, second only to Malaysia in Petronas’ portfolio, Wood Mackenzie senior analyst Prasanth Kakaraparthi said in a report.
“We believe this to be a positive development for Petronas,” the report says. “We expect the global LNG market to tighten post 2022 and this bodes well for the project.”
The analyst said activity is starting to ramp up again in the global LNG market with a number of new project approvals expected by next year, resulting in more competition and possibly rising project costs.
Neither Petronas nor Shell revealed how much the former is paying to enter the LNG Canada consortium.
“Petronas is in Canada for the long term and we are exploring a number of business opportunities that will allow us to increase our production and accelerate the monetization of our world-class resources in the North Montney. LNG is just one of those opportunities,” Petronas president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin said in a statement.
In March, B.C.’s New Democrat government offered new conditions and tax incentives for the province’s LNG projects, including relief from provincial sales taxes, subject to repayment in the form of an equivalent operational payment.
LNG projects would also be subject to new greenhouse gas emission standards and would have to pay general industrial electricity rates consistent with other industrial users in B.C., but the framework would repeal an LNG income tax introduced under the B.C. Liberals.