Petronas’ $29 Billion Canadian LNG Export Project Hits New Snag with Aboriginal Group

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June 22, 2015

By Rebecca Penty and Allison McNeely

(Bloomberg) — Petroliam Nasional Bhd.’s C$36 billion ($29.4 billion) Canadian natural gas export project was treading water after the global market for the fuel weakened. Now local opposition is adding a new hurdle.

A British Columbia aboriginal group that claims title to land earmarked for the liquefied natural gas terminal says it will take legal action if its environmental concerns aren’t addressed. That follows a decision by Petronas, as the Malaysian company is known, and investors earlier this month to press ahead with the Pacific NorthWest LNG terminal.

The Lax Kw’alaams band, which has already turned down C$1.15 billion in compensation, says the terminal is slated for a culturally significant island and would damage salmon habitat, Deputy Mayor Stan Dennis said in an interview. In October, then- Petronas Chief Executive Officer Shamsul Azhar Abbas said the project needs to stay on schedule and begin shipments in 2019 or face a deferral of 10 to 15 years, until another market window opens.

“One of the key risks is potential for delay,” said Tom Isaac, a partner at Osler, Hoskin & Harcourt LLP in Calgary who leads the firm’s aboriginal law group and has no stake in the project. “If litigation were initiated, that could take some time to wind its way through the courts.”

Several planned LNG project startups this decade means buyers will be oversupplied until at least 2020. About 40 percent of respondents to a recent Bloomberg Intelligence survey said the glut may last until 2025, analysts led by Elchin Mammadov said in a June 16 presentation.

Australia and Canada have the most expensive LNG projects in the world to develop, and some will be shelved or canceled, the analysts said.

Crude Crash

The crude market crash that began last year also helped to more than halve the spot price of LNG imported into Japan in April to $7.60 per million British thermal units from the prior year, according to data compiled by Bloomberg.

“We’re likely to see some export projects being delayed,” Mammadov said.

The Lax Kw’alaams are among several aboriginal groups that claim title to the coastal land where Petronas wants to build the LNG terminal. The group underwent political turmoil last year with the ouster and eventual reinstatement of its mayor. An election is scheduled for later this year that could affect talks with Pacific NorthWest LNG.

Dennis and other Lax Kw’alaams spokesmen didn’t return additional requests to comment. The group rejected the offer of compensation from the venture in May.

Fish Habitat

Meanwhile, Pacific NorthWest LNG continues to consult with groups including Lax Kw’alaams, Michael Culbert, president of the venture, said in an interview earlier this month. The developer’s proposal to build a suspension bridge to avoid the fish habitat is one way the venture aims to address environmental issues, Culbert said in a subsequent e-mail.

The project will move ahead if the British Columbia Legislature endorses an agreement on royalties and taxes with the provincial government and the proposal wins federal environmental approval, the developers said on June 11.

Petronas can probably find ways to mitigate environmental impacts and avoid a lawsuit, said Werner Antweiler, a University of British Columbia associate professor of business. Still, any delay could render it uneconomic if the market for LNG weakens further, with Canada already “Johnny come lately,” to the global industry, Antweiler said.

Russian Supplies

Reduced demand for gas in China and more supplies moving into the country from Russia and Central Asia are adding to the oil rout weighing on LNG prices. That will make it tough for projects starting this decade to recoup costs, said Ken Courtis, chairman of Starfort Holdings, an investment, private equity and commodity group, and a former Asia vice chairman of Goldman Sachs Group Inc.

Chinese customs data that show imported LNG in March at less than $5 per million British thermal units are part of a broader trend of lower prices in the country, Courtis said. The figure was below the price for pipeline supplies for the first time and less than the $13 or more needed to make the Canadian Pacific Coast proposals profitable, he said.

“The Canadian West Coast LNG projects are all problematic,” Courtis said.

–With assistance from Christopher Donville in Vancouver.

©2015 Bloomberg News

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