(EnergyAsia, October 2 2016, Sunday) — The Canadian government and Malaysian state energy firm Petronas are playing a game of giving each other “conditional” approvals that will further delay the construction of a proposed liquefied natural gas (LNG) export terminal on the north-western coast of British Columbia province.
Ottawa announced last week that it would allow the construction of the C$11 billion plant provided Petronas fulfils an incredible 190 conditions, including several related to protecting the environment, marine life and salmon-spawning in the Prince Rupert area. (US$1=C$1.31).
The announcement effectively puts the onus back on the Malaysian firm which in June 2015 said it would only proceed on the conditions that the provincial government approved a tax-generous development agreement and Ottawa passed the project’s environmental assessment. With the two approvals out of the way, all eyes are now on cash-strapped Petronas to make its next move.
In conceiving PNW LNG, Petronas had targeted to make the project’s final investment decision in late 2014 and to start up the plant’s LNG exports to Asia in 2018.
But the collapse in oil and gas prices since mid-2014 has forced the firm to delay as well as consider scaling back and even selling off the bulk of its 62% stake in the project that will require another $25 billion in upstream assets, pipelines and support infrastructure. Petronas ventured into Canada in 2012 by acquiring Calgary upstream firm Progress Energy for C$5.9 billion. After announcing plans for the integrated PNW LNG project, it progressively sold off small stakes to China’s Sinopec (10%), China Huadian (5%), Indian Oil Corp (10%), Japan Petroleum Exploration (10%) and PetroleumBrunei (3%).
After the last sales to the two Chinese firms in April 2014, Petronas said it was still looking to pare down its stake. Two months later, the global energy markets began a protracted decline that took Brent crude prices from nearly US$110 a barrel to around US$45 today. Petronas has found no takers for its remaining PNW LNG stake.
So, in yet another surprising twist, the company denied a Reuters report last week that it had been looking to sell off more shares in the project. The Reuters story was hardly a revelation as Petronas, which supplies around half the Malaysian government’s budget, has been slashing its capital expenditure and retrenching staff amid the sharp decline in its revenues and finances.
The BC government has backed Petronas to make good its investment promise despite the stream of negative news pointing to the weakening state of Malaysia’s commodity-dependent economy. The country’s political stability is also shaken by in-fighting in the government over a multi-billion-dollar corruption allegedly involving the prime minister and the growing threats of Islamic State (ISIS) terror groups as well as secessionist forces in Sabah state.