Petronas: Tax Breaks or 15-Year Hiatus for BC LNG Project

Malaysian Petroliam Nasional Berhad (Petronas) has warned the British Columbia (BC) government that the additional tax and high cost environment will negatively impact the Pacific NorthWest LNG (PNW LNG) project’s economic viability and competitiveness, saying that if there is no consensus on key principles by the end of October, the company will defer its investments until the next LNG marketing window, anticipated in 10-15 years.

“Fundamentally, we believe that the PNW LNG project has the ability to monetise, add value and link BC natural gas to the global market; to the benefit and prosperity of Canadians, especially to British Columbians. Nonetheless, the reality of the global LNG market is that we are facing potential overhang and decreasing demand that creates downward pressure on LNG prices. In this market environment, the ability to secure market and customers is paramount,” said Tan Sri Dato’ Shamsul Azhar Abbas, President and Group CEO, PETRONAS.

“Coupled with softening crude prices, there is a need for international energy companies such as PETRONAS to seriously prioritise and reassess our investments. The proposed fiscal package and regulatory pace in Canada threatens the global competitiveness of the PNW LNG project. This is further exacerbated by preliminary project costs, which indicates cost of local contractors to be higher and not benchmarked to global contractor’s cost,” he added.

Petronas claims that in its last portfolio review exercise, the current project economics appeared marginal. Without material cost reduction efforts cross the project the company says it will have a tough time reaching a positive FID by mid-December 2014.

The company believes that the next few weeks will be critical in ensuring that commitments made during the last meeting with the BC government officials will be followed through by creating a tangible environment which stimulates competitiveness and investor’s confidence in BC.