An internal memo from the Malaysian energy giant Petronas details a major curtailment of spending that could affect the Pacific NorthWest LNG project planned near Prince Rupert.
The Wall Street Journal reported this week that the memo from the major partner in that project outlines a plan to cut capital and operating spending by $11 billion. The company confirmed the plan. “Petronas confirms that it has circulated an internal communication on part of its ongoing efforts to optimize costs to address the impact of the continuous fall in crude oil prices,” the company said.
It doesn’t necessarily signify postponement of the Prince Rupert-area project, in which billions have already been invested. Petronas still has about $80 billion in capital-spending plans over the next five years in Malaysia, South Korea and elsewhere. So the retrenchment isn’t a total shutdown of development plans.
But it shows the main backer is feeling the pain from the collapse in oil prices. Discussing the B.C. project, Petronas CEO Wan Zulkiflee Wan Ariffin told Bloomberg Business last week that the decision on whether to proceed will be made in the first quarter of this year. The project “can’t be held in abeyance indefinitely.” He was also quoted as saying: “The window is closing fast.”
The corporation already made a conditional final investment decision, but there are a few complications. The remaining condition is the federal environmental-approval process, which resumed late last year and is working toward a decision this year. One specific component of the project — a trestle over an eelgrass bed that is salmon habitat — emerged as a high-profile problem, with one First Nation band expressing significant concern.
The band, based close to the site, filed a title claim a few months ago on the property. A statement said it “obligates the government to seek the consent of the Lax Kw’alaams people.” The band last year rejected a benefits deal, largely out of specific concerns about the Flores Bank eelgrass beds. An aboriginal-title claim would take years to play out in court.
So if Petronas is looking for projects to shelve, the PNW LNG concept includes a few headaches that warrant consideration.
But Natural Gas Development Minister Rich Coleman downplayed any concerns Friday about the spending cutback applying to the B.C. project.
“There’s no impact at all.”
He said the cuts are aimed more at operational spending than new capital investment. And there are other major capital projects that would be more affected.
Coleman and executives from Petronas and PNW LNG had meetings this week with the Lax Kw’alaams and others in the region. He said the company is still engaged in the project and wants to proceed.
PNW LNG was considered for the past few years to be the leader in the race to be first among the 20 players who have been interested in the LNG opportunity. But the oil-price drop and the corresponding drop in natural-gas prices might be re-ordering the lineup.
LNG Canada’s Kitimat project got a facility permit from the B.C. Oil and Gas Commission early this month, the first one issued. It already has the provincial and federal approvals. It needs one last permit from Fisheries and Oceans Canada before it has the full green light for a final investment decision. More tellingly, it has much deeper First Nations support and buy-in than Petronas.
But its pace is slowing as well. It quietly informed the government recently that its final investment decision, expected in the first quarter of 2016, is now slated for the fourth quarter.
All the pricing figures used over the past few years in calculating LNG projects in B.C. are long gone. The new calculations are about how many years it will take for them to rebound to the point where the projects are economically sound. And whether proponents can afford to build in the meantime.
Just So You Know: A reminder about the toast to Sir Winston Churchill on Sunday. Readers are invited at 2 p.m. to gather at the hawthorn tree he planted in Beacon Hill Park, in the Mayor’s Grove at the foot of Quadra Street. It’s the 51st anniversary of his death. There will be brief speeches, a free raffle of books and memorabilia and an appearance by the great man himself.