Petronas could shelve Canadian LNG project without favourable tax deal
Malaysian state-owned energy company Petronas said it could delay its planned US$11 billion liquefied natural gas plant on Canada's Pacific coast by up to 15 years unless it could reach a favourable tax deal by the end of this month.
Malaysian state-owned energy company Petronas said on Monday it could delay its planned US$11 billion liquefied natural gas plant on Canada's Pacific coast by up to 15 years unless it could reach a favourable tax deal by the end of this month.
Petronas said the economics of the plant were marginal and without a favourable tax arrangement with the province of British Columbia and Canada's federal government, it could shelve the project for a decade or more.
The company set a deadline of the end of October to reach a deal. "Missing this date will have the impact of having to defer our investments until the next LNG marketing window, anticipated in 10 to 15 years," it said.
With companies such as Petronas facing fierce competition from rapidly advancing LNG projects in the United States and Australia, the threat should be taken seriously, said Peter Tertzakian, the chief energy economist at ARC Financial.
"There is a trend for large multinational oil and gas companies to walk away from mega projects that are marginal and uncertain, so I don't view it as a bluff," he said.
More than 12 LNG projects have been proposed for British Columbia's Pacific coast, with companies such as Petronas, Royal Dutch Shell and Chevron leading the race to build Canada's first LNG export facility.
Chevron's project hit a bump earlier this year, after partner Apache said it would sell its stake in the Kitimat LNG project to focus on domestic oil production.
British Columbia is drafting tax rules for its nascent LNG export industry and negotiating the details with companies looking to supply the Asian market. Final legislation is expected later this month.
Christy Clark, the province's premier, said on Monday that while negotiations with Petronas were complex, she remained hopeful a deal would be made and her government was doing "everything we can to make sure this one works".
Petronas said both parties had agreed on clear milestones and actions to meet its mid-December target for a final investment decision.
