By Khairul Khalid
Despite Petronas’ conditional approval on its final investment decision for the RM109 billion Canadian LNG project, environmental opposition still clouds the project. Could it fall at the final hurdle?
It looks like after a long wait, Petronas’ troubled RM109 billion Canadian liquefied natural gas (LNG) project is finally set to take off. Or is it?
Pacific NorthWest LNG, the Canadian joint-venture company that is majority owned by Petronas, has given the greenlight for this massive project to go ahead, only if two outstanding matters can be resolved.
These two conditions, both environment related, are two very big “ifs” for Petronas in one of the biggest undertakings in the company’s 41-year history. Could the state oil company still fall at the final hurdle?
“The final investment decision will be confirmed by the partners of Pacific NorthWest LNG once two outstanding foundational conditions have been resolved.
“The first condition is the approval of the project development agreement by the legislative assembly of British Columbia, and the second is a positive regulatory decision on Pacific NorthWest LNG’s environmental assessment by the government of Canada,” said Pacific NorthWest in a statement.
Although the statement by Pacific NorthWest is a step forward for the project, it could still technically be derailed due to environmental concerns.
Despite Petronas’ conditional approval, big question marks still hang over the project.
The Canadian Environmental Assessment Agency (CEAA) has stopped its review of the proposed US$11 billion (RM41 billion) LNG export terminal, a crucial component of the whole project, for the third time this month.
It is requesting more details about Pacific NorthWest’s plans to minimise damage to salmon habitats and other marine life in the area.
The construction of the export terminal, the bulk of which is being built on native aboriginal land, is pivotal to the long-term commercial viability of the project.
Its initial investment in British Columbia, which started with its purchase of Canadian company Progress Energy Resources for US$5 billion in 2012, is approximately RM29 billion and the project is estimated to eventually cost Petronas US$30 billion over its entire duration of 25 years.
The LNG terminal will include a pipeline to deliver gas supplies from fields in northeast British Columbia to Lelu Island, near Prince Rupert, British Columbia, 770km northwest of Vancouver and would produce as much as 19.68 million metric tonnes of LNG a year, for 25 years starting in 2018.
The terminal would enable Petronas to sell and transport Progress Energy’s shale gas assets from British Columbia to lucrative Asian markets. Without the all-important export terminal, Petronas’ Progress Energy purchase diminishes in value.
Other than the CEAA, the Petronas project is also facing fierce opposition from Canadian aboriginals, who fear that their livelihood could be jeopardised if the export terminal is built on their land.
On May 13, a community of Canadian aboriginals, the Lax Kw’alaams, rejected Petronas’ compensation offer of C$1 billion (RM2.9 billion) to construct the LNG terminal on their land in Lelu Island.
Petronas said that the project will still go ahead, regardless of the aboriginals’ consent, while the natives themselves claimed otherwise.
Some analysts have stated that the oil price slump, which would also lead to a drop in LNG prices, is already a major impediment to the project.
Petronas new chief executive officer (CEO) Wan Zulkiflee Wan Ariffin, who took over from just over two months ago, has stated that the outlook for the industry is not very rosy and it will be many years before we will see oil reaching US$100 per barrel again.
Shamsul Azhar Abbas
Even former Petronas CEO Shamsul Azhar Abbas admitted that the project would be tough to monetise under the current economic climate.
“The reality of the global LNG market is that we are facing potential overhang and decreasing demand that creates downward pressure on LNG prices,” said Shamsul in October last year in an official statement.
“In fact, in its last portfolio review exercise, the current project economics appeared marginal. Without material cost reduction efforts across the project, the company will have a tough time reaching a positive final investment decision by December 2014,” said Shamsul then.
Now, it is halfway through 2015 and the project is still hanging by a thread.
With environmental uncertainties still hanging over the RM109 billion Canadian project, despite the conditional approval, Shamsul’s predictions could still come back to haunt Petronas. And what happens if the conditions are not met? Does Petronas just abandon the whole project and lose all its initial investments which amounted to some RM16 billion?
GRRRRR!!!
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