Petronas re­it­er­ates stand on Cana­dian LNG project

> Oil & gas gi­ant de­nies it is con­sid­er­ing sell­ing ma­jor­ity stake, says it will study con­di­tions, con­duct re­view

The Sun (Malaysia) - - SUNBIZ -

KUALA LUMPUR/MI­LAN: Malaysian state oil firm Petro­liam Na­sional Bhd (Petronas) is con­sid­er­ing sell­ing its ma­jor­ity stake in a US$27 bil­lion (RM111.4 bil­lion) Cana­dian liq­ue­fied nat­u­ral gas (LNG) plant, three peo­ple fa­mil­iar with the mat­ter said this week.

Petronas, as the com­pany is known, said in a state­ment on Satur­day that it “cat­e­gor­i­cally de­nied” the Reuters re­port on Fri­day that the com­pany is con­sid­er­ing the stake sale.

“Petronas re­it­er­ates that, to­gether with the project part­ners, it will study the con­di­tions that come with the ap­proval and con­duct a to­tal re­view of the project prior to mak­ing a de­ci­sion on the next steps for­ward,” the com­pany said in a state­ment on Satur­day.

Petronas is weigh­ing op­tions for the project as a more than 50% slide in crude oil prices since the mid­dle of 2014 has hit the group’s prof­its and prompted cuts to cap­i­tal ex­pen­di­ture and jobs.

Amid the cost-cut­ting, the eco­nomics of the Cana­dian project – which took three years to get ap­proval due to en­vi­ron­ment con­cerns – have been called into ques­tion as LNG prices (LNG-AS) have fallen more than 70% in two years.

Petronas was given the go-ahead for the C$36 bil­lion (RM113.4 bil­lion) project by the Cana­dian gov­ern­ment ear­lier this week.

It said then that ex­ec­u­tives would study the 190 con­di­tions im­posed by the author­i­ties and con­duct a re­view be­fore de­cid­ing on the next steps.

The sources said Petronas has been con­sid­er­ing a sale for months, af­ter it be­came ap­par­ent that a Cana­dian ap­proval was pos­si­ble, but had yet to take a fi­nal de­ci­sion. Other op­tions are also be­ing con­sid­ered, in­clud­ing putting it on ice.

“They are go­ing to be look­ing at gas prices, costs and re­turns be­fore they make the fi­nal de­ci­sion,” said one of the sources. “It is a very tough call.”

The Cana­dian project is Petronas’ big­gest for­eign in­vest­ment and seen as a sign of Malaysia’s global en­ergy am­bi­tions. An exit would un­der­score the fi­nan­cial con­straints at the state-run firm and also the soft out­look for LNG prices.

Last month, Petronas re­ported an 85% slide in sec­ond-quar­ter profit and la­belled the in­dus­try out­look “gloomy” well into 2017. It has com­mit­ted to pay­ing RM16 bil­lion to the gov­ern­ment cof­fers this year, down nearly 40% from its year-ago con­tri­bu­tion.

Petronas signed on for the project in 2012 through the ac­qui­si­tion of Canada’s Progress En­ergy.

It has faced sev­eral hur­dles. Abo­rig­i­nal and en­vi­ron­men­tal groups have said the project would threaten a salmon habi­tat.

The LNG price de­cline added to con­cerns, and there is also a grow­ing sup­ply glut as other projects went live.

If Petronas goes ahead with a sale, find­ing a buyer in cur­rent mar­ket con­di­tions would be dif­fi­cult, the sources said.

Petronas was con­sid­er­ing its op­tions as far back as a year ago, a sep­a­rate in­dus­try source said, but he added it would be dif­fi­cult to sell in the cur­rent en­vi­ron­ment given that Cana­dian projects are more ex­pen­sive.

If Petronas opts to sus­pend the Canada project, it would be put on ice un­til gas prices be­gin to turn around and Petronas is con­fi­dent of se­cur­ing long-term con­tracts at rea­son­able prices, said the sources, who de­clined to be iden­ti­fied as the ne­go­ti­a­tions are not pub­lic.

Other LNG projects in British Columbia have also faced de­lays, un­der­lin­ing the mar­ket out­look. In July, Royal Dutch Shell and its part­ners pushed back a de­ci­sion on build­ing an LNG ex­port ter­mi­nal, and Chevron has de­layed the sched­uled 2017 start of its Kiti­mat LNG project.

Petronas has mi­nor­ity part­ners for the project in China, In­dia, Ja­pan and Brunei. – Reuters

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.