With British Columbia’s provincial government having promised to settle the fiscal framework for the nascent LNG industry this autumn – and by the end of November at the latest – Canada’s LNG projects, most of which would be located in BC, are entering a critical make-or-break phase. BC premier Christy Clark (pictured above) is hoping to see at least two final investment decisions (FIDs) before the end of the year.
In a speech at an LNG conference in Vancouver in May, she said: “Petronas is scheduled, as you may know, to be the first major project to reach FID. Woodfibre is expected to be the first LNG plant in operation in BC. And with both companies we agreed to finalise our project development agreements by 30 November at the latest. That is the last step before getting to FID.”
However, Malaysian national oil and gas company Petronas, which is leading the most credible project – the Pacific North West venture – has started expressing doubts about whether it will actually go ahead.
In a report published in the Financial Times in September, the company’s CEO, Shamsul Abbas, is quoted as saying: “The way things are developing the project remains uncertain and I doubt we will be able to make a positive FID by year-end . . . 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.”
On the face of it, his remarks were shocking. The Pacific North West project is widely regarded as the most credible of the numerous proposals that have been put forward.
Owned 62% by Petronas, following its purchase of Progress Energy last year, PNW also counts amongst its shareholders China’s Sinopec (10%), the Canadian subsidiary of Japan Petroleum Exploration (10%), Japex Montney, the Indian Oil Corporation (10%) and Petroleum Brunei (3%) – and all have committed to taking LNG from the project. Moreover Petronas itself is one the world’s largest and most experienced LNG producers and Malaysia has recently invested in LNG import infrastructure because it needs more gas at home.
If Petronas were to walk away because it could not see the project as viable, the implications for the other various proposals would not look at all promising.
That has led some to assume that Petronas is playing hardball, trying to get the best possible terms for its project before fiscal terms are finalised and before taking FID. Christy Clark certainly seems to think so. In a recent speech her reaction to the remarks made by Shamsul Abbas was that the company was right to be trying to get the best deal for its shareholders.
That could turn out to be a dangerous assumption. One of the factors quoted by Shamsul Abbas as a contributor to his doubts is the competition from US LNG projects. He has a valid point. With two projects already under construction in the US – Cheniere’s Sabine Pass and Cameron LNG – it is now likely that another half dozen or so projects will reach FID within the coming 12 months. Three now have full FERC approval: Sabine Pass 1-4, Cameron and Freeport. Another four have received FERC scheduling notices indicating that approvals are likely before May 2015 (Jordan Cove is the latest to get a scheduling notice).
In contrast, we have yet to see a single LNG FID in Canada.
Meanwhile, Woodfibre LNG has taken two important steps forward towards reaching FID: on 11 September it announced that it had awarded an engineering, procurement and construction contract to Germany’s Linde Group, for the 2.1 mtpa plant. Based on the current schedule and subject to regulatory approvals, the project is due to begin construction in 2015 and come on stream in 2017. This would, as Clark has suggested, make the first project to begin shipping cargoes from Canada.
Towards the end of September the project announced that it had a preliminary offtake agreement with China’s Guangzhou Gas Group covering nearly half of the projects output: 1 mtpa over 25 years starting in 2017.
By Alex Forbes
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