Petronas threatens to pull plug on $10bn Canada LNG project – FT.com

Petronas, Malaysia’s state-owned oil and gas group, is threatening to pull the plug on a $10bn liquefied natural gas project in Canada, saying new taxes and rising competition from a slew of US shale gas projects threaten its viability.

The warning is the first sign that the rapid development of gas projects in the neighbouring US may be undermining the prospects for Canada’s gas export projects, many of which are destined to supply energy-hungry Asian economies.

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“The way things are developing the project remains uncertain and I doubt we will be able to make a positive [final investment decision] by year-end,” Shamsul Abbas, Petronas chief executive, told the Financial Times.

Petronas for the past two years has been working on developing a huge LNG project in Canada, having bought Progress Energy last year for C$5.5bn ($4.9bn) after a troubled antitrust process.

It aims to take gas from Rupert Island, a remote part of northeast British Columbia, liquefy it and transport it to Asia, where demand for LNG is projected to grow faster than in any other region.

Petronas owns 62 per cent of the project, in which China’s Sinopec in April said it would take a 15 per cent stake. Japex Montney – the Canadian subsidiary of Japan Petroleum Exploration – and Indian Oil Corporation each have 10 per cent while Petroleum Brunei has a 3 per cent interest. Each has made commitments to buy LNG from the Canadian project.

The Malaysian operator has also agreed with TransCanada, a pipeline operator, to build more than 900km of natural gas pipelines over rough terrain.

However, Mr Abbas said the company was “ready to call off” the project amid delays in the approval process, the recent imposition of an LNG tax by the British Columbia government and a “lack of appropriate incentives”.

“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,” Mr Abbas said ahead of a visit to Canada on Friday.

This year British Columbia unveiled a proposed two-tier tax rate of 1.5 per cent and 7 per cent, levied on income from liquefaction of natural gas in the province, regardless of whether the LNG is for export or domestic use.

Billed by the government as part of efforts to achieve a “competitive” tax policy to aid LNG development, it is due to be implemented early next year.

However, Mr Abbas warned that Canada was “already 40 years behind in the game” and that its biggest buyer of gas – the US – was now not only its biggest competitor but also “leading Canada by a far stretch”.

“Canada has to buck up real fast to be a credible global LNG player if it wants to be taken seriously by potential investors. Until investors cross the final investment line with an economically viable project, they remain just potential investors on paper,” he said.

There are now 13 proposed LNG plants on the west coast of Canada to export gas to Asia, including projects led by Shell, ExxonMobil and Chevron.

However, the shale gas boom in the US means it has less need for Canadian gas, and its imports are dwindling. They declined 26 per cent between 2007 and 2013, and are expected to fall further, industry analysts say.

via Petronas threatens to pull plug on $10bn Canada LNG project – FT.com.