Petronas to join LNG Canada project

Malaysian oil company Petronas is to take an equity position in LNG Canada, located in Kitimat, British Columbia (BC) on the west coast of Canada, through its wholly owned entity the North Montney LNG Limited Partnership (NMLLP). Upon closing, ownership interests in the project will be Shell (40%); Petronas (through NMLLP, 25%); PetroChina (15%); Diamond LNG Canada (a subsidiary of Mitsubishi, 15%) and Kogas (5%).

It is planned to construct a four-train plant with a capacity of up to 26mn t/y, together with an export terminal and a 670-km gas pipeline. A final investment decision (FID) remains pending.

Commenting on the news, Prasanth Kakaraparthi, Senior Analyst, Wood Mackenzie, says: ‘This marks an interesting turn of events after Petronas cancelled its C$36bn [$27.9bn] Pacific North West project in July 2017. With nearly 52tn cf of reserves and contingent resources – Canada is the second largest resource holder in Petronas’ portfolio after Malaysia. Consequently, monetisation through LNG is inevitable given the weak outlook for domestic prices.’

‘Costs will be a major concern for the project. Shell has announced its intent to make a decision by end of this year. But before LNG Canada can take FID, it will need to lower costs and take advantage of the latest tax breaks announced by the BC government.’

‘Petronas has signalled its intent to become a portfolio player and has taken steps to diversify its supply sources. Once both phases are executed, LNG Canada could add up to 7mn tonnes of equity LNG into Petronas’ portfolio – nearly 20% of its 2023 supply.’

Kakaraparthi concludes: ‘We expect the global LNG market to tighten post-2022 and this bodes well for the project. But activity has returned to the LNG space with a number of projects expecting to take FID ahead of 2019. A new wave of project sanctions and rising oil prices could push up project costs and dampen the economics.’

For more on the LNG market, see Petroleum Review’s July issue.