Petronas CEO fires warning shot
It will be years before the first tanker docks at a B.C. port, but the chief executive of Malaysian energy giant Petronas has fired a shot across the bow of B.C.’s nascent LNG dreams.
The warning from Shamsul Abbas came in an interview with the Financial Times ahead of his visit to British Columbia next week when he said the state-owned enterprise is wavering on its $10-billion Pacific Northwest LNG project over regulatory delays, a provincial LNG tax and a lack of “appropriate incentives.”
“The Canadian landscape of LNG development is now one of uncertainty, delay and short vision … Canada has to buck up real fast to be a credible global LNG player,” Abbas told the newspaper.
It remains to be seen if Abbas is negotiating in public with the B.C. government given an announcement on its contentious tax on exports of liquefied natural gas is due in October or — in the wake of Apache backing out of a rival Kitimat LNG project recently — the province has missed the boat on a much-touted windfall of energy development.
Close to 20 LNG developments have been proposed for the West Coast, but the Pacific Northwest project led by Petronas is considered among those most likely to proceed. None has given the goahead to build an export terminal yet. Apache’s partner, Chevron, is looking for a minority investor in Kitimat LNG, however, CEO John Watson has said it also needs clarity on B.C.’s proposed fiscal regime as well as the backing of B.C. First Nations that have been instrumental in delaying oilsands pipelines through the province.
Petronas has said it will make a final decision on the tidewater facility at Prince Rupert this year. B.C. Premier Christy Clark has said shale gas and LNG in the province could rival oilsands development in Alberta but most analysts caution only three or four LNG developments are likely to proceed — if any.
Clark and Rich Coleman, B.C.’s minister of natural gas development, both played down the threat Thursday, noting Abbas has expressed similar concerns previously.
In its February budget, the Clark government proposed a two-tier LNG tax that would be up to seven per cent of net profit once capital costs of the liquefaction plants are recovered to balance the deep discount on North American natural gas compared with prices in Asia. Petronas, which has a 62 per cent stake in Pacific Northwest and minority partners from China, India, Japan and Brunei, has a vested interest in the project going ahead since it paid $6 billion for gas producer Progress Energy in 2012.
With investment decisions looming, the negotiations are at a critical stage.
Companies have lobbied Ottawa and Victoria for tax advantages — euphemistically referred to as “fiscal clarity” or “fiscal stability.” They cite the need to compete with investment opportunities in Australia, the U.S., Qatar and elsewhere in the fast-growing global LNG industry.
B.C. does have the advantage of proximity to major Asian LNG markets.
“Posturing before the announcement is spilling into public domain,” Dundee Capital Markets’ analyst Maxim Sytchev wrote in a research note Thursday. “With the tax regime timeline getting closer to the wire, there will be a lot of posturing (on both sides) in order to secure the right terms.”
Governments need to accept it’s better to earn two or three per cent of $200 billion in LNG investments versus seven per cent of nothing, Sytchev said.
Coleman is clear about his priorities.
“We’re going to represent the interests of British Columbia, to make sure B.C. gets its share of this opportunity,” he told reporters in Whistler.
If Coleman and Clark need a precedent in dealing with global oil and gas giants they could look across the country — and back almost a decade — to when Newfoundland and Labrador Premier Danny Williams stared down Exx-onMobil and Chevron over terms of the Hebron offshore oil development.
“Go somewhere else,” Williams famously said. “We’ll still have our oil.”
The confrontational approach by Williams — critics likened him to Venezuelan dictator Hugo Chávez — eventually paid off and the province secured a 4.9 per cent stake in the onceshelved Hebron project and didn’t relent on other concessions industry wanted.
First oil from the $14-billion Hebron development is scheduled for 2017.
It’s certainly a balancing act for the B.C. government — and there’s real risk of driving away investment and undermining economic growth — but public posturing and predictable threats of mobile capital by CEOs shouldn’t be simply accepted as now-or-never ultimatums.
A strategic warning shot isn’t necessarily the opening of a broadside attack.