Petronas to Join LNG Canada (Update)

Update adds comments from consultancy WoodMac in final two paras

Malaysian state oil and gas group Petronas is buying a stake in LNG Canada, a planned export project in British Columbia on the west coast of Canada, the project's existing partners said May 31. The final investment decision is expected later this year but the operator says it remains subject to global energy markets and the relative competitiveness of the project.

Following the transaction receiving approval, the new ownership of the project will be Anglo-Dutch Shell (operator, 40%); Petronas (25%), PetroChina (15%); Mitsubishi (15%) and Kogas (5%). The previous ownership structure had Shell at 50%, PetroChina at 20% and Mitsubishi and Kogas each at 15%.

LNG Canada has chosen the joint venture of JGC and Fluor to carry out the engineering, procurement and construction for the project and is currently finalising materials in preparation for a final investment decision by joint venture participants.

British Columbia is home to one of the largest and most accessible sources of natural gas in the world, and the inclusion of Petronas brings another 52 trillion ft³ of reserves and contingent resources - held by Petronas subsidiaries North Montney LNG Limited Partnership and Progress Energy Canada - to the project. If the plant is constructed, its partners will ship natural gas, including from BC’s vast reserves, to various countries where the imported gas could displace more carbon intensive energy sources, helping to reduce greenhouse gas emissions, the statement said.   

Petronas was expected to invest in either the Shell or the Chevron-Woodside LNG project, also in British Columbia, but talks with the local government over its entry into the former project were announced unofficially May 4.

Wood Mackenzie senior analyst Prasanth Kakaraparthi said the move by Petronas is interesting, given it cancelled its C$36bn Pacific North West project in July 2017. At nearly 52 trillion ft³ of reserves and contingent resources, Canada is the second largest resource country in Petronas' portfolio after Malaysia, he adds, making monetisation of such gas through LNG inevitable given weak domestic prices.

Shell has announced its intent to make a decision by end-2018, added Kakaraparthi, but before LNG Canada can take FID, it will need to lower costs and take advantage of the latest tax breaks announced by the British Columbia government. He added that, if both phases of LNG Canada are executed, it could add up to 7mn mt/yr of equity LNG into Petronas' portfolio – nearly 20% of its 2023 supply.