This article first appeared in The Edge Malaysia Weekly on July 31, 2017 - August 6, 2017

IT is not easy to get hold of Petroliam Nasional Bhd (Petronas) president and CEO Datuk Wan Zulkiflee Wan Ariffin, what with the company’s businesses spread across the world commanding his attention.

In the early hours of last Wednesday, he met up with The Edge to explain the recent happenings at the oil company. Here are excerpts from the interview.

The Edge: With regard to Canada, what is the correct word to use? Some say ‘abort’, some say ‘exit’.

Datuk Wan Zulkiflee Wan Ariffin: Internally, we took a negative FID (final investment decision), which means we are not going to proceed with the project. So, internally, ‘negative FID’ is the term.

Our presence in Canada … if you take, at the upstream level, back in 2012, we fully acquired Progress Energy Canada Ltd. Subsequently, [we] sold down. Today, Progress has 62% interest [in Pacific NorthWest LNG].

There are two pipelines. The one that is going to the LNG site is PRGT (Prince Rupert Gas Transmission), which is to be developed by TransCanada Corp. The other pipeline — NGTL (Nova Gas Transmission Ltd) — is not affected because it takes the upstream gas to the domestic market. The affected areas are the LNG plant and its pipeline.

In 2012, our production was around 200 million standard cu ft per day (mmscfd), and this supplies the domestic market. Today, our production is over 500 mmscfd.

The half a billion mmscfd is all sold?

Yes, to the domestic gas network. Nothing goes to the LNG [site] yet, but for the domestic market. It’s in fact generating revenue.

In terms of how Canada’s proven reserves compare with our domestic resources, it is more than one third of Malaysia’s proven gas reserves, and Canada is our second largest gas resource after Malaysia. The current resources will last us 30 years.

What about the Pacific Northwest LNG project?

We did a lot of work — the front-end engineering — for the plant to be sited on Lelu Island in British Columbia.

Then, we got the conditional FID from all our partners in June 2015. What was pending was Canadian approval, which we got in September 2016, along with a long list of conditions.

But while we were working through the conditions, taking a total review of the projects, [we looked at] how we could bring down the costs … but the market was very, very challenging.

Today, the market is very weak, so that is why we decided not to proceed with the project.

We are disappointed with the market conditions, but this is something I have mentioned in the past. We go through a very stringent sanctioning process and definitely, we want to comfort ourselves — before we proceed with a project, it must be commercially viable.

We are very prudent and I think that it is very important for us to go into projects that we are really confident of making money.

The other pipeline is TransCanada’s, so we’ve been working with them. They have also been doing the front-end engineering. As a result, we have also terminated the contract with TransCanada. So the pipeline will not be built.

The pipeline from the grid to the LNG site, Lelu Island, will now be terminated.

How far has the project progressed? How much have you spent on it?

The plant cost around C$470 million [to construct]. There was also the C$650 million for the pipeline.

So, that is your total investment?

In Canada, it’s more than that because we were developing gas fields to produce for the domestic market.

What was the C$470 million spent on?

On engineering, doing surveys … all the front-end engineering. We entered into agreements with the First Nation (natives), did community engagements…

As for upstream, the investment is not lost, we will still produce. These gas assets in Canada are termed ‘unconventional natural gas’ (which include shale), where we produce it in the just-in-time concept. When the well is depleted, we will go to a new set of wells. We can even seal a well and return to it later.

So, it started with the acquisition of Progress Energy?

Yes, the acquisition alone was C$5.5 billion, which included the acquisition of the whole acerage and its gas reserves. And we have sold 38% of our stake to our partners.

So, in a nutshell, upstream, we are not sanctioning the plant, and the pipeline, we have terminated the contract.

We are very disappointed with the uncertain market conditions … we think that they will continue.

But, today, we have over 22 trillion cu ft of proven resources and we are committed to staying in Canada, which is now the second largest proven gas reserves for us. Moving forward, we will focus on developing our monetisation strategy for the North American markets.

You made the decision based on the market’s low LNG prices, so what is the current price?

It’s at about US$5 to US$6 mmbtu.

So, the current price and the price over the next few years make the project not commercially viable?

Yes, that is the big driver … as well as the current market conditions. And there’s also the project costs.

The LNG market, like any other, goes into cycles. Will you revisit the project in the future?

We will look at all the options. The point is, with the huge reserves we have, we can develop and monetise our assets at the right price, cost and time.

So, currently, the domestic market is only the Canadian market, but there is an option to go into the US market?

It’s one of our options. We are in locations where innovation [especially in the US market] is at a different level. We are in an environment in which everybody improves their technology, and it brings down production costs.

How about impairments?

I will have to check on the PNW side.

So, if there is an opportunity in the US market, would you have to build anything or would you just follow the grid?

Just follow the grid.

The other parties, what if they want to sell their stakes?

It’s up to them … but not Petronas. I can only speak for Petronas. But you must understand … upstream, they are still producing.

Some people may look at this as a victory for the environmental NGOs.

I look at LNG as the cleanest fossil fuel around, and there is no dispute about that. We are still bullish in the long term about the space that LNG will play in. I think it will be the fuel of choice among fossil fuels.

So, will the saved capex be directed elsewhere?

We will allocate the capex to the projects that are high on our sanctions list.

In Vietnam, you didn’t ask for an extension?

To be honest, we explored … [to see] if there was an opportunity for extension, but with the terms that were put on the table, it was not commercially viable for us to do so.

Can you put a figure on how much you have got from the 105 million barrels in Vietnam?

It’s difficult as the prices of oil over the past 20 years have fluctuated from as low at US$20 per barrel to more than US$100. But it’s been positive for us … our net investment position is positive.

You still have blocks in Vietnam?

We do, but they are not as big. Some were sold to Talisman Vietnam. Some were plugged and abandoned. Blocks 1 and 2 were the anchor in Vietnam.

You’ve sold other assets in Vietnam?

Downstream, we have sold our PVC (polyvinyl chloride) plant, but we still have downstream lubricants. We still have downstream Petchem sales and a sales office in Ho Chi Minh City.

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