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