Pacific NorthWest LNG in British Columbia was meant to produce 12 megatonnes per year and spur further development of Canada’s largest shale play, but industry observers said the move was widely expected given years of delay.
“It is a good decision not to invest in this project which is expensive and risky,” said Subbu Bettadapura, senior director, Asia Pacific, Frost and Sullivan. “Only question is why they took so long to come to this decision.”
Analysts had been sceptical about the project’s prospects given current low gas prices and constraints facing state-run Petronas, which has been cutting costs to deal with lower profits and cash flow.
The decision is the latest setback for Canada’s energy industry, already bruised by international oil firms selling off around $23bn in Canadian energy assets this year alone.
“We have a window of opportunity to develop BC’s LNG industry, but the next several years will be critical,” said Gillian Robinson, spokeswoman for the BC LNG Alliance. “We risk losing thousands of jobs and billions of dollars in benefits if BC does not have diversified access to markets.”
Pacific NorthWest LNG received approval from the Canadian government last year, but Petronas delayed its final investment decision on what would have been its biggest foreign investment.
The C$36bn price tag included around C$11bn for the export terminal, C$6.5bn in pipelines, the C$5.5bn Petronas paid for Progress Energy and its natural gas assets and around C$2bn a year expected to be spent on producing natural gas.
TransCanada Corp, which was contracted to build the pipeline connecting gas wells to the LNG terminal, said it will be reimbursed for costs associated with the project.
It had spent C$500mn as of April, spokesman Shawn Howard said.
Petronas had no immediate comment when asked about TransCanada’s statement. Japan Petroleum Exploration Co (Japex) said it would take a loss of about C$102mn ($82mn) due to the scrapping of the project.
Petronas had planned to produce its own gas to supply Pacific NorthWest LNG, rather than buying it from other producers, but no LNG demand means firms like Painted Pony Petroleum and Seven Generations Energy will continue to see low gas prices, analysts said.
“The demise of the LNG industry in Western Canada means that Western Canadian gas will largely remain captive to the oversupplied North American market,” BMO Capital Markets analyst Randy Ollenberger said in a note.
Of more than a dozen projects proposed for British Columbia, only the C$1.6bn privately held Woodfibre project has so far been given the green light by its developers. Last July Royal Dutch Shell and partners pushed back a final investment decision on their proposed LNG Canada project, citing global industry challenges.
Michelle Mungall, British Columbia’s energy minister, said she will be calling other LNG companies to reassure them her government is ready to work with them, but BC Green Party leader Andrew Weaver released a statement saying the future does not lie in “chasing the fossil fuel economy.” The ruling New Democratic Party, which formally took power this month, is backed by the environmentalist Green Party.
Its rise has fuelled uncertainty about energy development in the province.
A spokesman for Canada’s Natural Resources Minister Jim Carr, said Petronas’ move was a business decision.
Pacific NorthWest LNG board chairman Anuar Taib said in a statement that Petronas and partners would continue to develop natural gas assets in Canada.
“We are disappointed that the extremely challenging environment brought about by the prolonged depressed prices and shifts in the energy industry have led us to this decision,” Taib said. However, the company also appears to have shifted its focus to the $27bn Refinery and Petrochemical Integrated Development (RAPID) in southern Malaysia, that got a $7bn investment boost from Saudi oil giant Aramco in February.
With Malaysian Prime Minister Najib Razak expected to call elections in coming months, the state firm may also be more inclined to push ahead domestic projects, said Bettadapura. “They would want to make sure the economy grows here and they have a good report card before the elections. Petronas would not want to squander away its capital,” he said.
