Petronas - Pacific Northwest LNG project officially scrapped

[Northendzone]

the smart play now for the BC government is to launch some type of review or study on how they handle their LNG assets.

I think they need a vision statement for the next time some company wants to spend $40 billion on LNG in BC -because they don't want to fumble the ball a secondi time happen again, right?

[accord1999]

Originally Posted by Azure

One would think that there is expected demand for LNG down the road with so many coal plants coming offline.

Not so much in Asia, WRT to coal plants shutting down.

[CaptainCrunch]

Looks like the new government attempted a major shakedown of this project

http://business.financialpost.com/co...c-3826a01c932c

With energy prices collapsing globally, and the business in B.C. having a tough time remaining viable, Pacific NorthWest LNG needed less, not more government costs and regulations to stay in the game.


Instead, the new provincial government jacked up its demands, including higher carbon taxes, a “fair” return for resources (read a bigger provincial take), partnerships with First Nations (read fatter benefits agreements), protection for “our air, land and water including living up to our climate change commitments,” as outlined in Premier John Horgan’s mandate letter to the new energy minister, Michelle Mungall.


To make matters worse, Horgan repeatedly singled out Pacific NorthWest LNG during his election campaign as one that was “poorly sited” and that he would relocate (read another environmental assessment and, of course, more costs).

[Flash Walken]

The economics of this project have been suspect since it's inception. This is a casualty of technology, not some hamfisted attempt to bring out the environmental boogeymen. The economics of this project were always uncertain.

From 2014:

At least 17 projects to produce and ship Liquefied Natural Gas (LNG) from British Columbia are in various, early stages of development, but in no case has a final investment decision been made. All of them involve bringing gas to overseas markets, mostly in Asia. The Liberals who run the province say a healthy LNG sector is at the centre of their plan to restore its fiscal health. They hope that LNG will bring it between C$130 billion ($116 billion) and C$260 billion ($232 billion) in new revenue over the next 30 years.

All that, so the theory goes, should help make up for the fact that the province's other big energy export, coal, is in crisis because of falling world prices. Four coal mines have been idled recently because they are no longer viable. The latest was the Trend facility in northeastern BC, owned by Anglo-American, which last year produced 1.5m tonnes of coking coal. The price of that product has tumbled to US $120 per tonne, down from an historic high of $300, reached in 2011. Back then, a Canadian coal company, Grande Cache, was bought by Asian interests for C$1 billion; last week, a controlling share was sold for just C$2.

That grim background makes the idea of an LNG bonanza more attractive, but not necessarily easier. Relations with one of the main potential investors in LNG, Petronas of Malaysia, have become very tense as each side accuses the other of unrealistic expectations. On October 6th, the chief executive of Petronas, Shamsul Azhar Abbas, said plans to build a new C$11 billion facility in BC might be delayed by 15 years unless the provincial government offered better terms.

One of the Malaysians' complaints is beyond the remit of the provincial government: the high cost of Canadian labour and the difficulty, under Canadian federal law, of importing temporary foreign workers whose pay would be lower. Christy Clark, the BC premier, has said the Conservatives who dominate Canadia's federal government are "tragically misdirected" in their refusal to show greater flexibility on this point.

https://www.economist.com/blogs/amer...bia-and-energy

2016:

“B.C. LNG faces multiple issues, so to focus on the current market situation is a little myopic,” the Houston-based senior director of the Center for Energy Studies, told Metro. “For B.C. LNG, you’re last in the pecking order there.”

Even if oil and gas prices recover from their current collapse, “headwinds” include competing with Russian gas pipelines, the growth of renewable energy in China, and massive U.S. production.

It’s the “upfront capital expense” that puts B.C. in an unattractive light for investors, he argued, not just current prices. Only one scenario would see B.C. build one single project, he argued — if global demand suddenly accelerated “dramatically.”

“Then I could imagine a situation where one B.C. LNG project might look viable,” he said. “But if the demand is gradual — and you can anticipate that — there are lots of other projects much more attractive than something in B.C.”

Medlock also questioned Clark’s statement to Metro that, “We’ve seen $20 billion spent so far, so there's been a lot of work that's happened in terms of all the survey work, all the land-clearing work — $20 billion is a lot.”

“Wow, that seems too big,” he reacted, “way too high. It’s hardly a $20-billion price tag to construct an entire terminal.”

http://www.metronews.ca/news/vancouv...economist.html

2014:

Days before the deadline for its final investment decision, the company said it was deferring the 12-million tonnes/year project despite having secured agreements with the B.C. government.

Barry Munro, Ernst & Young’s Calgary-based oil and gas leader, said that while Petronas and the B.C. government showed great commitment to develop the PNW LNG project, the economics decisively shifted in the U.S.’s favour this year.

“The U.S. factor emerged strongly in 2014,” Mr. Munro said. “We have a very competitive neighbour, which has raised the odds against the development of a major Canadian-LNG export industry.”

Nevertheless, in an interview with the Financial Post last week, B.C. Premier Christy Clark maintained that Petronas will make a decision on the project next year. Confirming her comment, Sharbini Suhaili, Petronas’s international upstream vice-president, told reporters in Kuala Lumpur that he expects the company to make its decision in the first quarter of 2015.

Petronas postpones investment decision on Pacific Northwest LNG project
But it won’t be a straightforward one as Petronas is under pressure to increase investments back home largely to placate powerful politicians and counter Malaysia’s slowing economy. As a result of reduced earnings from lower oil prices, the company’s expected reduced contributions to the economy next year could spark criticism following its recent costly forays into Canada, Brazil and Venezuela.

At Petronas’s third quarter results briefing last month, CEO and President Shamsul Azhar Abbas warned of a 15% to 20% cutback in next year’s capital expenditure, and a 37% reduction in oil-based payments to the government if Brent crude averaged US$75 a barrel. Brent is now trading below US$65.

While the company was unhappy with what it saw as a delay by the B.C. government in announcing its final LNG tax rules, it also gave itself the herculean task of completing the massive greenfield project from conception in 2013 to plant start-up within five years.

Lacking experience with North America’s regulatory, aboriginal, labour and environmental challenges, the company plunged into Canada’s shale sector by proposing to bet the equivalent of 10% to 12% of Malaysia’s GDP on a single project.

“I’ve been asking the Malaysian government and Petronas to justify how they could invest so much of the country’s resources in a single project in an unfamiliar part of the world,” said Rafizi Ramli, a former Petronas chartered accountant and engineer who is today the secretary-general of the PKR, a leading opposition party. “I have yet to receive an answer.”

Mr. Rafizi, 37, who once handled tax and accounting matters for the international operations of Petronas’s Carigali upstream subsidiary until he resigned in 2009, said he plans to step up a national campaign for greater transparency and accountability in the management of one of Asia’s most successful state-owned energy firms.

While he expects Petronas to remain in Canada, he does not rule out the possibility of the company scrapping the LNG plan if market conditions fail to improve.

http://business.financialpost.com/co...2-1b1b9161951a

2014:

B.C. could also face intense competition from LNG export plants that could be developed in the U.S. along the Gulf of Mexico and in Oregon.

The CCPA’s Lee said that large companies such as Shell and Chevron want to cover their bases by staking claims in several jurisdictions.

“If you’re doing that in B.C. and Oregon and Australia and maybe somewhere else, then you’re able to play governments off against each other in terms of getting the most competitive deal,” he said. “So I think it’s smart for companies to be doing this.”

Lee and Austin agree that the key will be the price of LNG in Asia.

That’s also a topic of keen interest to Hillard Huntington of the Energy Modeling Forum at Stanford University.

His group brings people and organizations together to try to standardize assumptions about where energy prices are going.

The participants include energy companies, the U.S. government, Environment Canada, various utilities, academic groups, and industry associations.

Huntington told the Straight by phone from Stanford that U.S. federal officials are “particularly interested” in this research as they’re trying to decide how many LNG-export licences should be awarded.

“I’ve tried to get people involved from the B.C. government, but…it’s been a little hard to get their interest,” Huntington said.

He expects that the differential between LNG prices in Asia and North American natural-gas prices will “probably narrow a little more than people think is going to happen”.

“One of the reasons, of course, is as British Columbia and places in the United States start exporting more, that’s going to push up the price of gas here,” he predicted. “It’s not going to be dramatic. It’s not going to double the price or anything like that, but it’s going to push up the prices here as you’re selling overseas.”

That’s aside from the possibility that arbitrage (simultaneous buying and selling of commodities) in global natural-gas markets could offset the price differential.

Huntington also said that one of the biggest uncertainties is China.

According to a 2012 report by the U.S.–based Center for Strategic and International Studies, China has more “technically recoverable shale resources” of natural gas than the U.S. and Canada combined.

“You’re probably talking a decade or so before it really starts taking off,” Huntington said. “What that means is there’s kind of this window where some people will make money exporting these supplies. But I think it will be a limited window, and eventually market forces will kind of close that gap.”

That’s to say nothing of intense competition posed by gas-producing giants such as Qatar and Russia.

The Panama Canal expansion project has the potential to facilitate Gulf-state LNG exports to Asia, creating more challenges for B.C. plants.

2015:

The ship has already sailed in the global race to export liquefied natural gas to Asia, according to U.S. energy economist Kenneth Medlock — and Canada has missed it.

Medlock was a keynote speaker at the Canadian Energy Research Institute's annual conference on natural gas. This year the conference was called LNG: Canada's Last Window of Opportunity.

That title reflects the simmering anxiety among natural gas producers in Western Canada that the opportunity to sell their natural gas to Asia is slipping away

The anxiety is well-founded, according to Medlock.

"We don't see any LNG exports from Canada until almost 2040," he said in an interview.

Medlock expects almost all new LNG supply to come from the United States or Australia.

The largest issue is cost. Canadian projects are greenfield, meaning they are being built from scratch.

In the U.S., multiple projects are conversions of existing LNG import terminals that already have ports built and pipelines attached. They simply need to be converted so they can export instead of import.

"The fixed cost to get them finished is relatively low," said Medlock. "That serves a distinct advantage."

Medlock expects four of those terminals, including Maryland's Diamond Cove, pictured above, to come online soon, as well as several Australian projects.

"That’s going to cause a lot of softness in the market and cause a lot of developers to put the brakes on things.

"That's the capacity that’s coming — it’s already steel on the ground, so it’s happening — and the market is just not going to be substantial enough to absorb it all in a very short period of time. It's a classic boom-bust cycle."

Once that capacity comes online, Medlock expects, Asian LNG prices will drop to the point where Canadian facilities are no longer viable.

Because international prices for LNG are linked to the price of oil, they have come down considerably since August. The Japanese benchmark was trading close to $15 US per million British thermal units (MBTUs) to under $7 US. That's not enough to make shipping LNG from North America profitable for anyone right now.

http://www.cbc.ca/news/business/lng-...says-1.2978953

[OldDutch]

^ Sorry but I need coles notes.

The way I read it based on your articles was basically this.

1. Project was never slam dunk
2. Company tried to reach out to gov't for help
3. Help never came
4. Meanwhile US helped their industry
5. New gov't elected asking for more
6. Project cancelled

Is that the gist of all that becuase it sure supports the general theme here.

[Flash Walken]

Originally Posted by OldDutch

^ Sorry but I need coles notes.

The way I read it based on your articles was basically this.

1. Project was never slam dunk
2. Company tried to reach out to gov't for help
3. Help never came
4. Meanwhile US helped their industry
5. New gov't elected asking for more
6. Project cancelled

Is that the gist of all that becuase it sure supports the general theme here.

1) Project was never a slam dunk
2) Government was late in developing tax/royalty structure
3) US Shale technology came online
4) prices for gas plummeted
5) US capitalized on existing LNG import terminal capacity
6) Prices have never recovered
7) Other countries that beat Canada to the punch are not experiencing the sellers market windfall they anticipated

[cal_guy]

The biggest thing with the US is that it had a lot of infrastructure for the importation of LNG. Once shale gas took off it didn't take much to start exporting.

[me_dennis]

LNG facilities are also stupidly expensive. With the price of LNG dropping drastically, the project didn't make sense, same with Alaska LNG.

Sadly, the LNG ship has sailed for Canada. Too late the the party.

[GGG]

Is LNG Canada still alive and doing site prep?

[Hart50]

I think we can dispense with this silly notion that Canada didn't have a large part to play in kyboshing this and other energy projects.

http://business.financialpost.com/co...3-960ab99d0427

[GGG]

Harper really doesn't take enough heat for effectively banning foreign ownership of resource companies. Such a terrible protectionist job killing policy and so anti-fiscal conservative doctrine.

[Zarley]

Originally Posted by GGG

Harper really doesn't take enough heat for effectively banning foreign ownership of resource companies. Such a terrible protectionist job killing policy and so anti-fiscal conservative doctrine.

That's not true at all, the Harper conservatives liberalized FDI by raising the threshold for deals requiring industry Canada review in 2015 (currently $800M). In fact, Chinese investors have been quietly acquiring a significant number of distressed junior oil and gas companies since the new thresholds came into effect.

You might be confused with the restrictions on state-owned enterprises. Under 2012 rules, SOEs looking to acquire oil sands assets are subject to automatic review.

The only major deal that the Conservatives killed was the BHP takeover of Potashcorp, which was done at the insistence of Brad Wall amidst a silly populist revolt. Obviously a stupid decision, but it hardly equates to "effectively banning foreign ownership of resource companies." In fact, FDI in Canada increased by 86% over Harper's premiership, with the resource sector responsible for a major portion of that.

[GGG]

Yes I was referring to SOE legislation which basically killed the market for oil sand juniors being bought out making it much more difficult to raise capital because the exit strategy was no longer clear.

One of the big issues is that it becomes difficult to use an oil sands pant as collateral for borrowing if default would transfer ownership to the SOE.

[Slava]

Originally Posted by Zarley

That's not true at all, the Harper conservatives liberalized FDI by raising the threshold for deals requiring industry Canada review in 2015 (currently $800M). In fact, Chinese investors have been quietly acquiring a significant number of distressed junior oil and gas companies since the new thresholds came into effect.

You might be confused with the restrictions on state-owned enterprises. Under 2012 rules, SOEs looking to acquire oil sands assets are subject to automatic review.

The only major deal that the Conservatives killed was the BHP takeover of Potashcorp, which was done at the insistence of Brad Wall amidst a silly populist revolt. Obviously a stupid decision, but it hardly equates to "effectively banning foreign ownership of resource companies." In fact, FDI in Canada increased by 86% over Harper's premiership, with the resource sector responsible for a major portion of that.

Be that as it may, Harper and his government could have approved this project, but instead dithered. Then the Liberals "approved it" albeit with about ten conditions they knew could never be satisfied. And now the window for this to go ahead is gone and that's that.

[indes]

Sucks that we missed the boat on LNG, I'm not sure why so many people are anti-development. I guess we just keep running deficits and hope we find something else to help us compete in the global economy. It's just won't be resources...or tech...or manufacturing...I'm sure there's lots of other 'diversification'.

[JD]

After spending my last few years overseas, I am starting to get a better appreciation for what Canada is; extremely isolated! Naturally the US is going to be our biggest customer for whatever it is we produce, but to open other markets, Canada needs to really go the extra mile. Because at the end of the day, if China needs to buy gas, where can they get it cheaper? From us, or from Turkmenistan?

I am starting to feel that we Canadians are a bit arrogant about what we have to offer the world. Especially as most of the previously "developing" world is getting caught up in many ways. If we are to be an attractive vendor of goods or services, we are going to need to find a way to make it more competitive.

Instead, we seem to find ways to put barriers up for ourselves. I'm not saying that's necessarily the case with this project, I know very little about it to be honest. But I do know that while this is happening in Canada, many countries in this region are spending billions on developing their natural gas production, processing, storage, and transportation capabilities.

[OldDutch]

^ It is because Canada enjoys one of the highest standard of living in the world, and the average joe has no idea why. "Why not kill this project it? It won't affect me, and its the 'right thing to do'!"

We also have a history or being way too passive. Comes from is basically living off the US and not needing to fight for anything anymore. So we have culturally grown into this "always do the right thing" mindset, even if it is against our own interests. US has been very astute to take advantage of this by funding the environmental movement here.

I think the Feds get what is going on. However until Quebec and BC start having large unemployment and program cuts you won't see a mindset shift. People just do not understand what makes this country work.

[DiracSpike]

Boy Scout Nation.

People don't want to acknowledge it, but nobody cares about what Canada does on the world stage. We're not relevant, a do-gooder country of 35 million with no global power. We're basically Poland. So it's really rich when people say we need to set an example with all this anti development/carbon tax business, you don't care what Poland does and nobody cares what we do.

[Azure]

Originally Posted by JD

After spending my last few years overseas, I am starting to get a better appreciation for what Canada is; extremely isolated! Naturally the US is going to be our biggest customer for whatever it is we produce, but to open other markets, Canada needs to really go the extra mile. Because at the end of the day, if China needs to buy gas, where can they get it cheaper? From us, or from Turkmenistan?

I am starting to feel that we Canadians are a bit arrogant about what we have to offer the world. Especially as most of the previously "developing" world is getting caught up in many ways. If we are to be an attractive vendor of goods or services, we are going to need to find a way to make it more competitive.

Instead, we seem to find ways to put barriers up for ourselves. I'm not saying that's necessarily the case with this project, I know very little about it to be honest. But I do know that while this is happening in Canada, many countries in this region are spending billions on developing their natural gas production, processing, storage, and transportation capabilities.

We are very arrogant about what we want to offer to the world and what we want to allow the world to offer us.

Look at our supply management system.

[CaptainCrunch]

Originally Posted by DiracSpike

Boy Scout Nation.

People don't want to acknowledge it, but nobody cares about what Canada does on the world stage. We're not relevant, a do-gooder country of 35 million with no global power. We're basically Poland. So it's really rich when people say we need to set an example with all this anti development/carbon tax business, you don't care what Poland does and nobody cares what we do.

On top of that we're a competitor and we don't do a good job of competing.

We have this massive manufacturing segment that isn't going to be able to compete on the global market as the third world can do it cheaper, and the Americans want their factories back. Its a fight that we're not going to win.

Energy resources? We got out flanked by the Americans plain and simple. they played dirty and now we have to play catchup and we're not willing to do that so instead we're going to watch investment dollars going elsewhere.

High Tech? We're a cottage industry compared to the Americans and the far east and we don't really compete all that well.

We basically have our other resources, but those industries lost the public relations battle so we have an internal non interest in really doing anything with it.

So what's left, banking? Housing. Imports for sale?

We don't have a plan As much as we talk about diversification its an empty word. We have to pick what we're good at and what we want to do as a nation to compete and do whatever it takes to take it to the global market.