B.C.’s Clark downplays Petronas threat
B.C. Premier Christy Clark says a threat by Petronas to quit a proposed liquefied natural gas project is just part of negotiations over the province’s tax take, but experts say the Malaysian firm’s message should be cause for worry.
The Financial Times quotes Petronas chief executive Shamsul Abbas as saying he’s ready to call off the $10-billion project to be built near Prince Rupert, B.C. amid a delayed regulatory approval process, plans by the provincial government to impose an LNG tax and a “lack of appropriate incentives.”
“Rather than ensuring the development of the LNG industry through appropriate incentives and assurance of legal and fiscal stability, the Canadian landscape of LNG development is now one of uncertainty, delay and short vision,” Abbas told the newspaper.
Clark told reporters in Vancouver on Thursday she’s optimistic a deal will be worked out and that British Columbians will one day benefit from LNG investment.
“What Petronas is doing is standing up to try and get the absolute best deal that they can get for their shareholders. That’s what they should do. What we’re doing at the negotiating table is trying to get the absolute best deal for British Columbians and for Canadians. And that’s the process,” she said.
“And so I’m still very, very hopeful that we’ll get there and a lot of the discussion that you’ve seen publicly is part of what you’ll always see in the course of any kind of difficult negotiation. But I know they see the assets in British Columbia as incredibly valuable and a really important part of the company’s future.”
B.C. shouldn’t assume Abbas’s comments are just about posturing, said Barry Munro, who leads global consulting firm EY’s Canadian oil and gas practice.
“There would be some people speculating that this is a negotiation tactic or that there’s just a push and pull of companies trying to get to the best economic terms. You could make light of the commentary or the challenge that’s been put forth,” he said.
“I just think from a B.C. perspective, that would be a dangerous assumption to make. It may well be the right one. It’s just a dangerous one.”
There are a litany of challenges facing LNG players: pricing pressure, cost escalation and global competition among them, said Munro. So all of the right conditions must be in place for a company like Petronas to be convinced it’s worthwhile to shell out billions of dollars on a project.
“I think people should heed the intended message very carefully to make sure that if they’re serious about advancing the LNG business, they do whatever they can to try to address the concerns,” he said.
Cameron Gingrich, director of gas services at consultancy Ziff Energy, said B.C. has to strike the right balance, lest it scare off LNG investment.
“These guys are looking at making a profitable run at it and if the B.C. government is looking to get royalties, a carbon tax and then on top of that an income tax on LNG facilities, it certainly make the economics of building a (multi) billion-dollar facility a hard pill to swallow,” he said.
Abbas is expected to visit Canada later this week.
State-owned Petronas is leading the Pacific Northwest LNG project with a 62 per cent stake.
It bought Progress Energy Corp. in 2012 in a $6-billion deal that was closely scrutinized by Ottawa.
“We’re still working hard towards a final investment decision by the end of the year,” said Spencer Sproule, a spokesman for the project, which also includes partners from China, India, Japan and Brunei.
Maxim Sytchev, head of research at Dundee Capital Markets, said an official decision on whether or not to move ahead with the project is likely to slip into early 2015.
The B.C. government is expected to unveil its fiscal regime for LNG next month, a development eagerly anticipated by LNG players trying to work out the economics of their projects.
“Posturing before the announcement is spilling into public domain,” Sytchev wrote in a note to clients.