Common Sense Canadian
 

Petronas likely to put BC LNG project on hold, says Malaysian business paper

PostedOctober 7, 2015 by in International
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BC Premier Christy Clark touring Petronas' operations in Malaysia (BC Govt / Flickr CC licence)

BC Premier Christy Clark touring Petronas’ operations in Malaysia (BC Govt / Flickr CC licence)

Business publication The Malaysian Reserve is predicting that that country’s oil and gas giant Petronas will likely put its planned LNG project for Lelu Island, near Prince Rupert, on hold – citing the very weakening economic factors that we at The Common Sense Canadian have been warning about for years. The bottom line is this: As the story acknowledges, “Petronas would require LNG prices to hover between US$11-US$12/Mbtu for the project to break even.” Compare that with plunging Asian LNG prices – now in the $7-8 range, and you see how Petronas would be leery about building $20 Billion LNG plant and pipeline that it can’t make money on.

Read the eye-opening story, then ask yourself how long before the BC Government comes around to this painful realization:

Petroliam Nasional Bhd (Petronas) is likely to defer commercial operations of its Canadian liquified natural gas (LNG) project to 2022 or 2024 as the depressed oil and gas (O&G) prices continue to shroud earnings prospects, analysts said.

The Canadian project, the national oil company’s largest investment abroad, was expected to begin operations in 2019.

But low LNG prices with the Asian LNG slumping around 60% since 2014 to US$8 (RM34.99)/Mbtu is a cause of concern for Petronas.

Analysts said Petronas would require LNG prices to hover between US$11-US$12/Mbtu for the project to break even.

“But with (gas) prices as they are, many projects, not only related to Petronas, do not look viable,” an analyst at a securities research firm covering the O&G sector told The Malaysian Reserve (TMR).

Petronas and its partners intend to invest about RM160 billion into the project over several years, projecting the global gas market to increase by 50% by 2040.

The project already faced multiple delays related to regulatory approvals, low gas prices and possible capital expenditure (capex) cuts, an analyst said.

Last week, TMR reported that Petronas could cut its 2015 capex up to RM16 billion, as revenues slide amid continuous low oil prices.

Moody’s Investors Service predicted Petronas’ revenue to fall from RM329.1 billion in 2014 to RM240 billion-RM250 billion this year.

An analyst at a local investment bank said: “A delay (for the Canada project) is likely. Deferring the project to 2022 or even 2024 would be less costly than completely exiting the project.

“Pausing for a while and then restarting when conditions improve isn’t a bad option. With additional capacity coming onstream, there is really no rush for Petronas to complete the Canadian project.” Oil giant Chevron Corp early this year announced it would slash spending on its LNG export facility in Kitimat, another district in Canada.

Additional capacity from the US and Australia is expected to come online before Canada’s mostly greenfield projects are completed, analysts say.

Last week Royal Dutch Shell plc shocked the market when it announced it would cease all offshore drilling in the Arctic after spending more than US$7 billion (RM30.61 billion) over several years to search for oil.

“If Shell is prepared to write off a substantial amount of investments on a project that it has deemed too expensive, then Petronas should do the same,” an analyst told TMR.

READ: http://themalaysianreserve.com/new/story/petronas-may-defer-canada-lng-project

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10 Comments


  1.  
    Annonymous

    you definitely wont have it on Lelu island.Take your junk and take off LNG.your not wanted here




  2.  
    nonconfidencevote

    “planned LNG project for Lelu Island, near Prince Rupert, on hold – citing the very weakening economic factors”

    Economic factors have never stopped the BC Liberal govt before from building a white elephant.

    If the Hydro dam currently under construction is any indication.




    •  
      Damien Gillis

      True – except the govt isn’t building it. And a company and country(Malaysia) already saddled with huge debt facing massive losses on a $20 Billion project may well have second thoughts…That’s the difference between this one and Site C.




      •  
        n

        Well we can only hope that the number crunchers at Petronas will do the same as Shell in Alaska and walk away before they spend 7 billion dollars….




  3.  
    Salal

    Put LNG and it’s fracking component to bed….for good. Our environment and our children’s children future home deserves to remain super natural and not like those countries who have allowed this assualt on Mother Nature to continue.




    •  
      Shell

      Maintaining Natural Environment for our children is super important.
      But we do not wish to inherit those natural environments to let our children to sleep on the streets.

      Canada is a country that has limited sources of income and in the future as well.

      We don’t have well developed tech industry like Korea , China or Japan, or strong IT based companies like our neighbour.

      We need to make good use of our natural resources in order for us to invest in the future so that our children can afford nice house to sleep warm.




  4.  

    Whether or not BC develops an LNG export industry depends on the future world demand and supply picture. Currently, world production is some 240 million tonnes (MT) of LNG annually. Coming onstream before 2020 – from Australia (62MT), U.S.(90MT), Russia (37MT), Papua New Guinea (15MT), Mozambique (12MT) and others – are already-started plants which will together double world LNG production. And that’s not counting any of BC’s projected 80MT.

    The problem is that world LNG demand has been flat for the past 3 years. If that continues – and there are many reasons – among them China’s slowdown, Japan’s nuclear power restarts, Russia-China piped-gas deals and the steady growth of competitive renewables – to believe it will, the result will be an enormous oversupply. Today’s US$7-8 LNG prices will inevitably drop even further below the profitable level of US$12-13. At least for the next 10-15 years until some of the older plants wear out. And a lot can change before then, not least public attitudes toward fracking and burning fossil fuels.

    Small wonder Petronas and others are rethinking their BC investments.




  5.  
    Don Messier

    With the probable delay of this bad idea—— There is absolutely no EXCUSE for not relocating the site away from Flora Banks !! There is sufficient time to search out ,deal on , and summit a new site application !! If work continues at Le Luu and Flora Banks this company is showing their total contempt and disrespect to First Nations , science and all British Columbias .





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