This article first appeared in The Edge Financial Daily on July 27, 2017
KUALA LUMPUR: The decision of Petroliam Nasional Bhd (Petronas) and its partners to halt the proposed US$27 billion (RM115.56 billion) Pacific Northwest LNG Project in Canada’s west coast leaves no major impact on the local oil and gas (O&G) industry, say analysts.
One bank-backed analyst dismissed the notion that Petronas would reallocate the financial resources for the project to liquefied natural gas (LNG) projects in Malaysia.
“The capital expenditure that was allocated by Petronas for the Canadian project is meant for overseas projects, so I think if Petronas were to reallocate their resources they would choose other economically feasible projects overseas, be it LNG or oil projects.
“I think that Petronas would probably relook at other LNG diversification projects. It could be a production project like the Canada one or could be service-based projects as well. In that sense Malaysian players with overseas O&G interests could benefit,” he told The Edge Financial Daily.
Another analyst with a local investment bank said the decision by Petronas was the right one, given the low LNG prices.
“When the project first came about [in 2013], it was economically feasible then as LNG prices were high, but then oil prices crashed [in 2014] and LNG became dirt cheap.
“It doesn’t make sense for Petronas to incur costs for an asset that is not going to generate a lucrative return on investment,” he told The Edge Financial Daily.
LNG prices stood at US$17.77/MMBtu on April 30, 2014, a time when crude oil prices were at US$109 per barrel. However, when the slump in crude oil prices began in June 2014, LNG prices fell to as low as US$5.35 on May 31, 2016, an almost 70% decline in two years.
Since then, LNG prices have increased marginally, trading at US$8.52 (RM36.47) on May 31, 2017.
Another analyst commented that if there were any losing parties to the deal it would be Canada.
“It was a huge foreign direct investment to the Canadians, with a lot of job opportunities and such. If anything the impact would be felt among the players there rather than our local players,” he said.
In a statement yesterday, Petronas said its commitment in Canada will continue through Progress Energy Canada Ltd — which it bought for C$5.5 billion in 2012 to take control of its inventory of natural gas resources — and that the subsidiary plays a key role in supporting the group’s growth strategy in North America.
The national oil company said the decision taken with its partners to not proceed with the Pacific Northwest project was made after a “careful and total review of the project amid changes in market conditions”.
“We are disappointed that the extremely challenging environment brought about by the prolonged depressed prices and shifts in the energy industry have led us to this decision,” said Petronas executive vice president and chief executive officer (upstream), Anuar Taib.
“We, along with our North Montney Joint Venture partners, remain committed to developing our significant natural gas assets in Canada and will continue to explore all options as part of our long-term investment strategy moving forward,” he added.
Petronas holds a 62% stake in the partnership, while the other shareholders are Sinopec-China Huadian (15%), Japan Petroleum Export Corp (10%), Indian Oil Corp Ltd (10%) and Brunei National Petroleum Company Sdn Bhd (3%).