Petronas Threatens to Drop $10-Billion LNG Project

Petronas CEO Shamsul Abbas said that in the LNG market, Canada was 40 years behind the game. 

Malaysia’s state-owned oil and gas group Petronas has threatened to pull its $10 billion liquefied natural gas (LNG) investment in British Columbia, Canada, local media reports. 

Petronas CEO Shamsul Abbas told The Financial Times earlier this week that a new LNG tax in the province and increasing competition from shale gas producers in the U.S. had caused him to consider calling off the project altogether. 

"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,” said Abbas. 

Abbas was also quoted as saying Canada was "40 years behind the game," and would have to "buck up real fast" in order to become a credible player in the LNG market.  

B.C. Premier Christy Clark played down the comments, saying that it was all part of the process of negotiating the deal.

"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," she said.

Critics, however, are not convinced that Petronas will see the project profitable enough on top of added regulations, competition, pricing pressures. 

"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 makes the economics of building a (multi) billion-dollar facility a hard pill to swallow," said Cameron Gingrich, director of gas services at Calgary-based Ziff Energy.

Petronas currently holds a 62 per cent stake in the Pacific Northwest LNG project, having bought Calgary-based Progress Energy Corp. in 2012 for $6 billion to develop LNG in Canada.

China Petroleum & Chemical Corp (Sinopec) holds 15 percent, Japex Montney, the Canadian subsidiary of Japan Petroleum Exploration and Indian Oil Corporation each have 10 per cent, while Petroleum Brunei holds 3 percent.

The project is currently one of about 15 projects proposed for British Columbia, though it is likely that only a handful will proceed. 

Earlier this year, Port Metro Vancouver was tipped in a report to become the preferred LNG bunkering destination in North America.