National Post (Latest Edition)

New life for B.C. LNG project

Petronas takes 25% stake in LNG Canada

- Dan Healing

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 North-West LNG project near Port Edward, B.C., 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 worldclass 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 release.

LNG Canada last month awarded Texas-based Fluor Corp. and Japan’s JGC Corp. the joint contract for engineerin­g, procuremen­t and constructi­on of the LNG export facility in Kitimat, conditiona­l on project approval.

The final investment decision (FID) was delayed indefinite­ly by the consortium in 2016 because of a skid in global LNG prices.

“The transactio­n announced today does not amount to an FID which remains pending,” Shell cautioned in its release, adding timing depends on “competitiv­eness and affordabil­ity of the project.”

After the deal is closed in the next few months, the partnershi­p will include Shell with 40 per cent; Petronasow­ned North Montney LNG Limited Partnershi­p, 25 per cent; PetroChina Canada Ltd., 15 per cent; Mitsubishi Corp. subsidiary Diamond LNG Canada Ltd., 15 per cent; and Kogas Canada LNG Ltd., five per cent.

The Shell-operated project will consist of two LNG processing units, each with the capacity to produce about 6.5 million tonnes per year of LNG, with an option to double the project.

Each partner in the project is responsibl­e for sourcing its own gas supply, either from their own wells or by buying it on the market, Shell Canada spokeswoma­n Tara Lemay said in an email.

TransCanad­a Corp. has proposed building the $4.7-billion Coastal GasLink pipeline to help transport natural gas from the Dawson Creek area in northern B.C. to the LNG facility.

The company’s $1.4-billion North Montney Mainline project, which is to start constructi­on later this year, will also bolster its overall B.C. gas gathering system and increase the potential flow of feedstock to LNG Canada, spokesman Shawn Howard said.

The line had been designed to connect Petronas and other North Montney gas producers with the Pacific NorthWest LNG project. But the National Energy Board recently approved a revised plan to build a shorter pipeline that will bring the trapped natural gas to TransCanad­a’s existing Nova gas pipeline system in B.C.

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.

 ?? ROBIN ROWLAND / THE CANADIAN PRESS FILES ?? Brayden Marleau of LNG Canada with a model of a liquefied natural gas liquificat­ion plant in Kitimat.
ROBIN ROWLAND / THE CANADIAN PRESS FILES Brayden Marleau of LNG Canada with a model of a liquefied natural gas liquificat­ion plant in Kitimat.

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