Bloomberg News

Petronas Says Canada Must Avoid Australia Mistakes in LNG Policy

May 21, 2014

British Columbia must avoid Australia’s policy missteps if it wants to establish itself as a source of liquefied natural gas for Asia, said Petroliam Nasional Bhd. Chief Executive Officer Shamsul Azhar Abbas.

“There are pivotal lessons to be learned from the Australian experience,” Shamsul said yesterday at a Vancouver conference on the development of an LNG industry in the Canadian province. “Let’s not slaughter the goose before it has a chance to hatch the golden egg.”

Petronas, as Malaysia’s state oil and gas company is known, is among global energy producers vying to build gas-shipping terminals on Canada’s Pacific Coast to meet rising demand for the fuel in Asia.

Chevron Corp. (CVX:US) and BG Group Plc are among energy companies that have been hit by cost overruns at their Australian LNG projects. Australia has about A$200 billion ($185 billion) in LNG ventures under construction, putting the country on course to surpass Qatar as the world’s biggest supplier of the fuel. Still, some A$180 billion of potential investment is under threat due to high costs and increasing competition, according to the Australian Petroleum Production & Exploration Association, an industry lobby group.

Australia introduced “severe fiscal and regulatory policies” that added to the cost of doing business and negatively affected project economics there, Shamsul said.

“As a result, the anticipated second wave of investors shied away, and even current investors are scrutinizing project viability,” he said.

Planned Royalties

British Columbia, which predicts LNG activity could add as much as C$1 trillion ($916 billion) of gross domestic product by 2046, has set a goal of having three LNG projects in operation by 2020.

The provincial government is trying to erase its debt with royalties and fees it plans to charge the LNG industry. The province introduced details of its tax in February and is scheduled to seek approval from the legislature in the fall.

Petronas, which plans to make a final investment decision on its British Columbia project by the end of this year, also is in talks to sell as much as 12 percent of the facility, Shamsul said May 14. The company reduced its ownership to 62 percent after selling stakes to companies from China, India, Brunei and Japan.

There are 17 coastal LNG proposals in Canada to process a total of at least 28 billion cubic feet of gas a day, consultants Bentek Energy LLC estimated last month. Among Canadian proposals by companies including Royal Dutch Shell Plc (RDSA), Chevron and Petronas, no final decisions have been made. LNG exports from British Columbia will reach 1.8 billion cubic feet a day by 2020, according to Bentek.

‘Leaders Change’

The Pacific Northwest LNG project by Petronas and Shell-led LNG Canada appear to be in the lead in the export contest in Canada, according to a report yesterday by AltaCorp Capital Inc. in Calgary.

“Like many races, the leaders change, and in the case of LNG terminals, there is more than one jockey on each horse, and there will be project mergers down the road,” according to the AltaCorp report.

In addition to securing buyers for decades worth of supply required to backstop financing of the Pacific Coast projects, proponents of Canadian LNG projects need to negotiate access to coastal lands claimed by aboriginal groups, known as First Nations in Canada.

“The negotiation of terms for long-term Canadian gas supply contracts, and clarity around BC’s LNG Tax framework are two variables that we think will be key to determining which projects move forward to completion, and on what timeframe,” Katherine Spector and Mike Tran of Canadian Imperial Bank of Commerce’s commodities research division in New York, said in a May 20 note.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net Steven Frank, Andrew Hobbs


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