Malaysia's Petronas to purchase equity stake in LNG Canada project

Dan Healing, The Canadian Press</span>
Published Thursday, May 31, 2018 5:11AM EDT
Last Updated Thursday, May 31, 2018 11:48AM EDT

CALGARY -- Canada's stalled West Coast LNG export industry got a major shot in the arm early 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 NorthWest LNG project near Port Edward, B.C., due to what it called an "extremely challenging environment" brought on by prolonged low LNG prices.

Petronas has 52 trillion cubic feet of natural gas reserves and contingent resources in Canada, making the country home to the second-largest resource in Petronas' portfolio after Malaysia, 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 cautioned that activity is starting to ramp up again in the global LNG space with a number of new projects expected to be given approvals ahead of next year, creating competition and possibly rising project costs.

Neither Petronas nor Shell revealed in their news releases 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 world-class resources in the North Montney. LNG is just one of those opportunities," said Petronas president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin in a release.

LNG Canada last month awarded Texas-based Fluor Corp., and JGC Corp., based in Japan, the contract for the engineering, procurement and construction of the LNG export facility in Kitimat, conditional on a positive final investment decision.

The final investment decision (FID) on the project 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 a release. "The timing and outcome of an FID will be decided by joint venture participants based on global energy markets, and the overall 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; Petronas-owned 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 initially consist of two LNG processing units with an option to expand the project in the future.

In addition to construction of the Kitimat terminal, LNG Canada is looking to TransCanada Corp. to build the proposed $4.7-billion Coastal GasLink pipeline to carry LNG from the gas fields of northeastern B.C. to the port for shipment overseas.

In March, B.C.'s New Democrat government offered new conditions and tax incentives for the province's liquefied natural gas 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.

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